Dan Atkinson and John Cassy
SHARE WORLD
The Internet’s huge, hyperactive gossip and rumour machine looks almost certain to come under scrutiny from the British Financial Services Authority (FSA) amid rising concern about its power to move share prices and even to distort markets.
Scams such as “pumping and dumping” – in which Internet noticeboards are abused by rogue share promoters – will be investigated by a special FSA think-tank.
The terms of reference for the e- commerce investigation team – which will draw on all relevant expertise within the authority’s headquarters in London’s Docklands – are still being drafted.
It is thought certain, however, that the vast, unregulated bazaar of tips and gossip will come within its scope.
Alarmed by the ability of cyberspace’s rumour-mongers to talk up stocks in which they might have built up large positions, thus making a mockery of laws on market abuse, the “thematic” inquiry into e- commerce, established last month by FSA chair Howard Davies, is likely to seek remedies for the plague of misleading information.
Tony Hobman, the chief executive of Proshare, the organisation that promotes private share ownership, said potential investors should use information on Internet bulletin boards with caution.
“We have seen a great leap forward in the public’s interest in share dealing, but people should not pile into the stock just on the basis of a tip they read online,” he said.
“The dark side of Net trading is that it is easy to do, and when dot.com stocks are rising so dramatically it can be very tempting to get involved.
“Investors need to understand what they are doing, research the companies they think about buying into and spread their risk.” Fuelling official concern is the explosion in potential regulatory cases involving the Internet and e-commerce.
Three months ago, of the 50 to 60 files opened each month by FSA investigators, 10% related to the Internet. The figure now is 15%, with further increases expected.
But the authorities are hobbled to an extent by protection in the human rights Act for freedom of expression.
A source said there was no real legal “grip” enabling the FSA to come down hard on the Internet gossip machine – although it is believed that official surveillance of the Internet is being stepped up.
It is understood that the FSA will steer clear of any attempt to regulate opinions not given in what is known as the “course of business”, however malicious or unfounded these opinions may be.
The thinking seems to be that companies themselves are both equipped for monitoring comments about them on the Internet and responsible for doing so.
Furthermore, there is a feeling inside the authority that “market separation” – under which it is clear to even the average investor which areas of online comment and advice are “safe” and which are not – might be a natural development, and one that is not wholly undesirable.
But a hands-off policy is not an option, not least because of the damage that fast- moving rumours -often corrupted by the self-interest of the rumour-monger – could do to the integrity of financial markets.
More than one in five execution-only share trades will be conducted over the Internet by the end of March, the Association of Private Client, Investment Managers and Stockbrokers predicts.
“We can easily see one-quarter of all trades taking place online by the end of this year,” said the organisation’s head of information, Brian Mairs. He added that online share trading had doubled every quarter since the start of 1999.
In the fourth quarter of 1999, 2,3- million execution trades were carried out in Britain, 155E000 of which were on the Net.
MANY FIRMS RUNNING INTERNET BULLETIN BOARDS HAVE PLEDGED TO EXPEL INDIVIDUALS WHO POST FALSE OR INACCURATE INFORMATION ON THEIR MESSAGE BOARDS.