Stock Market

[capsmallcap]

I've been exclusively trading the small cap and micro cap (penny) stocks for a few years now. Like 95% of traders, I have a twitter page and a facebook page and follow the relevant trading pages.

I usually post my analysis of the stocks I buy into based on publicly available information on both of these social media groups and have consistently given two disclosures:
"I hold this stock" & "I'm not a financial advisor, this is not financial advice". I also never recommend anyone to buying any stocks which I am aware is not allowed, I just post my research as to why I have bought in.

I've noticed very recently, perhaps due to the new influx of money flowing into the market because of COVID19, that when I buy a stock and post my research online the stock will move 30-80% on the same day.
Of course by then the stock is considered over valued and I close out my position.

This has happened 4 times in a row now, and it's no longer feeling like a coincidence. It seems as if people are simply buying a stock because I have bought it and discussed it.

I'm concerned about the legalities of possibly having this kind of influence, if in fact this influence is real.

I've browsed the Corporations ACT 2001, Section 1041A through to 1041K which seems to have all the relevant stock market trading rules. I can't seem to find anything, or at least I don't believe there to be anything there for my situation.

Additionally, does anyone know what kind of lawyer I can contact regarding this? I'd like to get actual legal advice but no idea which lawyers I can consult on this topic.

 

[Rob Legat - SBPL]

There are a whole raft of things to be careful about in this area, and it turns to quite specialised advice the more complicated the rules get (and to give you a hint, they very rarely get simpler). I know about enough to know that I don’t know enough.

Perhaps the most crucial aspect, at least to my thinking, is to ensure that you’re are not giving any form of advice or recommendation for financial investment. Doing that requires you to have a financial services licence, and it’s not something you want to go into just ‘for safety’s sake’ - you’re either in, or you keep right out of that space.

Broadly speaking advice can fall under two umbrellas: there is specific/tailored advice, which is what you give to someone after considering their individual aims and situation, and there is also (and this is the one to be careful of for you) retail/general advice. A recommendation about a stock can easily fall into the general advice trap. Think any comment containing phrases along the lines of: ‘This stock is good for....’, ‘Buy this if.....’, ‘You’ll want to...’, ‘Make sure....’, ‘This means....’, ‘... in which case...’, and so on.

Simply having a disclaimer is not enough. It’s precisely worthless if you say, ‘I’m not doing (stupid thing)’, and then immediately go and do (stupid thing). That’s not to say you shouldn’t have a disclaimer - you absolutely should. It should be prominent, and state very clearly that you are not licensed to give financial advice, you are not giving financial advice, and that none of your comments should be construed as financial advice by any reader.

 

[JazKaz]

Hi, I’m studying finance, studying being the key word - not an expert.
I’m very curious about your situation.

Its possible that what you are experiencing is related to the principle of market efficiency. You post info publicly, people read the post, use it as if it was financial advice and invest in the same stock.
It’s interesting that you have been noticing the rise in price, then you profit -take / get out of stock once it reaches a certain price, resulting in a big profit for you.

It could just be that market conditions change favourably for the company that you invest in and that you have no control the price rises despite giving the public your analysis.

A change in market expectations is likely to raise the price in these items of uncertainty. In this case you would have nothing to worry about as external, market conditions are determining the price rises like your analysis likely estimated. A great prediction btw, very hard to time the market consistently 4 times in a row.

At this point I may be a little suspicious that your analysis is having an impact on the stocks you analyse. I would be very careful if I were you. I agree with what @Rob Legat - SBPL said, a disclaimer is not enough.

If your informing the public lead to those following your posts to copy your lead, the affects on the market could be similar to short-selling.

Short selling is where share certificates are loaned on margin to sell high and buy back low to profit. Yes you haven’t short sold, there is no financial liability is created in your circumstance but what I’m trying to say is that the affects are similar.

They both could adversely affect the share price. Short selling can drive it down dramatically which is why there are regulations on this sort of thing to prevent this.

 

[capsmallcap]

If your informing the public lead to those following your posts to copy your lead, the affects on the market could be similar to short-selling.

Would the law really see me as responsible for other people executing trades, provided the precautions of disclaimers and careful choice of words (as above mentioned) are taken?

It's not possible to short-sell the micro/small cap environment, likely due to ASIC regulation.
However I can buy to go long, then close the position. Which is what all retail traders are restricted to doing in the micro/small cap environment.

At this point I may be a little suspicious that your analysis is having an impact on the stocks you analyse

These are relatively low volume (<$200k) traded stocks. Whilst I don't believe I have anywhere near the influence to gather that much market movement, it seems to only take $15-20k of money to get momentum going before others catch-on and hop on board and the wild trading takes over.


Any suggestion of what kind of lawyer I could speak to? Would it be corporate, or finance?

 

[JazKaz]

It's not possible to short-sell the micro/small cap environment, likely due to ASIC regulation.
However I can buy to go long, then close the position. Which is what all retail traders are restricted to doing in the micro/small cap environment.

Yeah I thought so.

These are relatively low volume (<$200k) traded stocks. Whilst I don't believe I have anywhere near the influence to gather that much market movement, it seems to only take $15-20k of money to get momentum going before others catch-on and hop on board and the wild trading takes over.

Low volume and only needing about 15k... I’m guessing these stocks have low stock prices given current climates. That would have a resulting large percentage increase when trading starts so I’m not surprised about trade kicking off.

As for a lawyer to talk to, try a financial lawyer, perhaps one specialising in private equity?