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One Tweet Cost Twitter $8 Billion

posted by CoolHand on Thursday April 30 2015, @06:58AM   
from the at-least-someone-tweets-something-that-matters dept.

GlennC writes:

Twitter was due to announce its earnings for the first quarter of the year after close of trading on the New York Stock Exchange, where the company is listed.

Except it turns out that somebody thought it would be a good idea to release this information early, on the technology-led NASDAQ run Investor Relations page for Twitter.

Initially it seemed no one really noticed the error, until a well-placed tweet highlighted the mistake and revealed Twitter's disappointing results.

http://www.bbc.com/news/technology-32511932

At one point in the final hours of trading, the stock had lost more than $8 BILLION.

• A better reading of the problem. A better reading of the problem. (Score: 3, Informative) by MrGuy on Thursday April 30 2015, @03:08PM

  by MrGuy (1007) on Thursday April 30 2015, @03:08PM (#177099)

  A major market-moving piece of information relevant to the share price of Twitter was released in a problematic way, which caused major disruption in trading markets.

  The tweet did not cause the market capitalization to fall by $8 billion. The underlying financial results disclosed by the tweet causes the market capitalization to fall by making the stock price fall. Companies are required to disclose such financial results regularly. Had these results been published in the manner they normally are published (released after the close of trading for the day, so that all market participants have a chance to absorb them and re-evaluate their positions), the stock would have fallen in value by the same amount.

  One of the ideas markets try to hold to is that they are "fair" to all participants - every market participant should have access to the same information. This is why trading prices are published, outstanding orders are public, why audited financial results conforming with GAAP are required at regular intervals, etc. This is why insider trading and "tipping off" individuals is a problem (and is something that tends to be enforced, though admittedly imperfectly). Individuals with "material, non-public information" are required NOT to participate in markets they have information for. Yes, big algorithmic traders have a speed edge in absorbing/acting on information, which does give them something of an edge, but their edge does not come from having better information - it comes from having better (or at least faster) decision making.

  There are rules about how information can be disclosed that give this "fairness" - information has to be available to all market participants at the same time. This is why "after the close" publication is so common.

  The reason the Twitter case is problematic isn't because the market cap lost $8 billion (and so caused plenty of losses for people who held the stock). The problem is that the losses weren't "fairly" distributed. Some individuals who discovered the accidental disclosure had information about where the market would move before others. If they held Twitter, they could sell it before the market price caught up. They could "bet" on a loss (by buying options or selling short). The could profit by their superior information, at the expense of others who did not have that information. This kind of thing creates turmoil. It also creates a regulatory nightmare - if I have information that I received via public channels (and a company's official public Twitter channel seems to qualify), then I'm justified in acting on it. But if someone tipped me off that there was a major event, and the stealth-leak via twitter was done to cover it (i.e. create a "fig leaf" that the information was public, even though someone would have to dig through pages and pages of documentation to find it), then possibly some "bad actors" conspired to manipulate markets, which is a major crime. Telling the difference is really hard.

  Starting Score:	1		point
  Moderation		+1
  Informative=1, Total=1
  Extra 'Informative' Modifier		0
  Karma-Bonus Modifier		+1
  Total Score:		3

• Re:A better reading of the problem. (Score: 1, Touché) by Anonymous Coward on Thursday April 30 2015, @03:40PM

  by Anonymous Coward on Thursday April 30 2015, @03:40PM (#177120)

  Yeah, the company will probably be fined by the SEC, and maybe there will be a personnel shakeup.

  (pause)

  They'll fire the sysadmin.

  Parent