The Force of Financial Securities Industry

By G. Kevin Mathis, IAC Student Intern

In the Star Wars Galaxy, the Force binds everyone and everything together.  Some characters are highly sensitive to this Force and those characters can train themselves to wield the Force’s power.  Some force sensitive characters utilize their Force powers for the betterment of the Galaxy while others use Force powers to further their personal goals.  The key is that this Force must remain balanced or chaos may ensue.  A group of Force users, the Jedi, protect that balance through disciplined study, wise counsel, and if necessary regulatory action with the use of a light saber.

Communication binds the “galaxy” of financial securities.  Investing firms recognize the power of communication so they use social media sentiment to harness the power of investor communications to their benefit.  Investors use communication (warning about bad actors, sending information on promising investments, and contacting others with inquiries on leads) to protect themselves and others. FINRA uses communications to protect the balance between the two.

FINRA identified four models that these firms use to wield the power of communications to accomplish their goals. The four models identified are:

  • Social media data analytics companies that aggregate and analyze various social media platforms using natural language processing technology. These companies strategically partner with broker-dealers to gain access to their brokerage platform and allow individuals to trade based on the forecasted trends.
  • Social media sentiment-based product issuers that cultivate indices to track social media sentiment, then launch ETFs referencing the indices.
  • Crowdsourced research networks who operate websites seeking to crowdsource ideas either from the retail public at large or from the buy-side community. These networks then market themselves to proprietary traders and hedge funds which purchase the network’s analysis to inform their trading strategies.
  • Social networking platforms that certain online brokerage websites offer to their users to share and discuss trade ideas amongst themselves.

FINRA is obligated to find the balance between innovations in communication using social media and the rules on communicating information to investors.  FINRA’s rules were established to protect investors from false or misleading claims, exaggerated statements, and material omissionsFINRA’s rules require firms to: (1) retain books, records, and third-party posts, (2) maintain the ability to supervise the business-related content associated persons (and bots) communicate, (3) refrain from linking to questionable third-party websites and communications, (4) continue to adhere to suitability standards when communicating, and (5) communicate in a fair and balanced manner regardless of the communication medium.