Prevent Insider Trading

In the securities industry, one of the chief concerns of compliance officers is monitoring the personal trading activities of employees in accordance with best practices and industry regulations. The following are ten steps a Compliance Officer can take to prevent insider trading within their firm.

Step 1
Implement a personal trading policy within the firm. Make it clear to employees what they can and what they can't do in relation to the trading of securities in their personal accounts. Determine which employees are ''covered'' by the policy. A personal trading policy to prevent insider trading should cover at a minimum the following
• Definition of 'Covered persons' and 'covered securities' as they apply to the firm.
• Adoption of pre-clearance procedures.
• Having employees provide monthly and quarterly brokerage statements
• Having employees periodically report their holdings.
• Having new employees report holdings within 10 business days of starting the position.
• Having employees report any outside business activities that they participate in.
Step 2
Make sure that ''covered'' employees know and understand the firms personal trading policy. Distribute the policy to employees on a regular basis and have employees attest that they have read and that they understand the policy.
Step 3
Create a restricted list of securities which employees are prevented from trading in. This list should cover all securities with which the firm posses insider information or which the firms portfolio is actively trading in.
Step 4
Implement a trade-pre-clearance process within the firm. Make sure that all covered employees obtain permission prior to placing a trade in a 'covered' security.
Step 5
Have 'covered' employees submit a list of their accounts and the accounts of all direct family and the accounts of individuals over whom they have discretionary authority. Have each employee attest that this is a full list of their accounts.
Step 6
Have all employees submit copies of their trade confirms and brokerage statements to the compliance department on a monthly basis.
Step 7
Have all employees attest to the personal trades they placed on a quarterly basis.
Step 8
Complete regular checks to validate employees are following the personal trading policy e.g. they are receiving trade pre clearances and that they are not trading securities on the restricted and watch lists.
Step 9
Complete checks to make sure that employees are not front running or tail gating trades made in the firms portfolio.
Step 10
Run checks against major breaking news stories to check for correlations between employees trading activity and the breaking of major news stories which impact the movement of a particular security.

Source : articlerich