SEC looking to monitor social media activity that could sway markets

The U.S. Securities and Exchange Commission is seeking a social media monitoring tool to alert the government of posts that could potentially impact the financial markets.

What are the details?

Last week, the commission pitched a solicitation for a "Social Media Monitoring Subscription," asking for bids from small — $27 million or less — businesses who can provide a fully functioning mechanism with the ability to flag key words and email activity to SEC staff.

In addition to having the ability to monitor Facebook, Twitter, and the like, the SEC also wants to use the tool for scanning forums and message boards.

The SEC's solicitation does not disclose any specifics on how they would use information gathered from the new tool. But when reporting on the bid opportunity, Nextgov senior editor Aaron Boyd wrote that "the potential effects of social media on markets are undeniable."

Boyd pointed to the recent impact Elon Musk had on Tesla's stock price through his Twitter messaging, which reportedly prompted an SEC investigation.

A 2013 article in Forbes gave numerous examples of instances where social media posts have had an impact on the financial markets, and cited peer-reviewed studies touting the ability of digital tools in predicting market activity.

In a study conducted by Palo Alto Labs titled, "Predicting the Future With Social Media," researchers concluded: "We show that a simple model build from the rate at which tweets are created about particular topics can outperform market-based predictors. We further demonstrate how sentiments extracted from Twitter can be further utilized to improve the forecasting power of social media."

Anything else?

In 2012, then-SEC Chairwoman Mary Shapiro told the media that social media sites like Facebook and Twitter have made it more difficult for regulators to catch insider trading.

"The incredibly low cost and ease of reaching millions of people through social media creates opportunities for mischief, without question," Shapiro said.