With the growing accessibility of "do-it-yourself" investment technology, it should come as no surprise that retail investing has been on the rise. In fact, the Ontario Securities Commission (OSC) recently published a study (the Study) which reveals that there has been a sharp increase in retail investing since 2015, and especially since the onset of the COVID-19 pandemic. The Study also reveals that a significant number of retail investors rely on information that they find on social media to inform their investment decisions.

Retail investors' decisions can have major impacts on capital markets. In early 2021, for example, a group of retail investors caused the prices of Blackberry Ltd. and GameStop Corp. shares to soar based on information that they read on Reddit. These cases demonstrate that social media can be an effective tool to disseminate information. Although this information can be valuable, these cases also demonstrate that social media can provide a platform where misleading and unbalanced information can be spread. As a result, the OSC and other securities regulators have been grappling with how to respond to the flood of social media commentary behind these wild swings.

Securities laws and regulations should adapt to the realities of the 21st century to, for example, prohibit the spread of false and misleading information about public companies. Following in the footsteps of other jurisdictions, such as British Columbia, Ontario's Capital Markets Modernization Task Force recently recommended that sharing false and misleading information about public companies online should be prosecuted and penalized. These sorts of policies could, for example, prevent social media from facilitating abusive short selling through 'short and distort' tactics and 'pump and dump' schemes. While that sounds good on its face, securities regulators will also need to proceed with caution so as not to stifle legitimate shareholder activism on social media.

In 2017, we blogged about how social media has been used as a vehicle for shareholder activism and a powerful tool to disseminate information that might stimulate or ward off change. Since publishing that blog post, social media has become an even more important force in shareholder activism. According to the Study, 13% of participants - a significant minority - sought investment information from social media and other websites, including Twitter, Facebook and Reddit. This suggests that social media can be used to reach a growing constituency of retail investors that make decisions based on what they read on social media.

Going forward, securities laws and regulations will need to take into account the growing presence of retail investors that make decisions based on information that they read online. While policy makers should be careful not to develop policies that might have a chilling effect on online discourse, the need to curb false and misleading information from being shared must be addressed. As a starting point, we should take the recommendations of Ontario's Capital Markets Modernization Task Force seriously and look to jurisdictions, such as British Columbia, for best practices in striking the right balance of promoting legitimate shareholder activism and preventing the spread of false and misleading information about public companies online.

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