Meera Khan – When Donald Trump tweets, the market listens.
Mr. Trump’s social media megaphone has quickly created an unprecedented bully pulpit for the president-elect. While past presidents meticulously crafted speeches and presidential addresses, Mr. Trump is breaking the mold of traditional executive correspondence by creating what is now being termed a “Twitter presidency”—delivering hot takes on domestic and foreign policy in 140 characters or less. Mr. Trump’s effort to bypass mainstream political media by communicating through an unfiltered real-time broadcast of his thoughts, however, comes with potentially significant implications.
As president-elect, Mr. Trump’s tweets are a particularly powerful market-moving weapon capable of producing economic turbulence ranging from minor fluctuations in stock values to major market events. Since the election, Mr. Trump has taken to Twitter to vilify large corporations such as General Motors, Toyota, Lockheed Martin, and Boeing (to name a few). Each tirade follows the same pattern: Mr. Trump lambasts a publicly traded company on Twitter, the targeted company’s stock reacts negatively—often the entire market index dips, and eventually the stock recovers. Lather, rinse, repeat.
Unsurprisingly, this has prompted accusations of market manipulation and insider trading. For instance, traders reportedly began dumping Lockheed Martin shares six minutes before Mr. Trump’s tweet criticizing the F-35 fighter jet program. It is likely, however, that hedge funders were merely able to accurately anticipate Mr. Trump’s Twitter habits; @realDonaldTrump’s ability to move the market, even if only marginally, is driving savvy Wall Street traders to utilize social media analytics when investing. Nonetheless, if, arguendo, Mr. Trump’s tweets were calculated to drive down stock prices in order to allow someone to make a profit, the president-elect would conceivably be running afoul of insider trading laws such as the STOCK Act, which makes it illegal for a government official to trade on market-moving information.
The 2012 Stop Trading on Congressional Knowledge Act (“STOCK”) is an act of Congress designed to combat insider trading. Intended for securities transactions including the buying and selling of stocks and bonds, STOCK prohibits members and employees of Congress from using “any nonpublic information derived from the individual’s position…or gained from performance of the individual’s duties, for personal benefit.” Notwithstanding thorny immunity issues, STOCK has also been read to apply to the President through its language encompassing all “executive branch employees.” While the president-elect is said to have sold all of his extensive stock holdings, and is thereby unlikely to personally benefit from the stock price shifts, members of Mr. Trump’s inner circle could theoretically benefit from his tweets if they are privy to which companies will be targeted before the public is. Anyone who knows the contents of the President’s tweet before it becomes public may be in possession of market-moving information, and if traded on, could run the risk of implicating STOCK. The question that remains to be seen, then, would be whether the information in the tweet was obtained “from such person’s position as an executive branch employee.”
Undoubtedly, the Trump administration is set to sail into the uncharted territories of a “Twitter presidency” that will fodder plenty of legal analysis for the next four years. In the meantime, for those considering trading on Mr. Trump’s tweets, finance app developers are rolling out a “Trump Trigger” that has you covered.