Conquering Current Compliance Challenges
June 12, 2019 | 2:00 - 2:30 PM EST

Conquering Current Compliance Challenges
Recorded: May 15, 2019 
Includes: Best Practices, Key Regulatory Issues and Compliance Tips
Includes: 23 Best Practices, 5 Peer-tested tools and 15 No Action Letters

Cybersecurity Strategies to Ensure SEC Compliance, 2nd Edition
Includes: 24 Best Practices, 16 Tools, 4 Risk Alerts and IM Guidance

There is no doubting that securities regulators are squarely focused on the issue of insider trading.  The numbers don’t lie:  in the past 5 years alone the SEC has brought 580 insider trading cases.  FINRA employs nearly 40 people dedicated to monitoring the markets for insider trading and refers about 300 suspected cases per year to the SEC.  The FBI has roughly doubled the number of insider trading cases it takes on annually in the last five years—to about 150 per year.
New rulemaking further emphasizes the regulators’ interest in insider trading.  FINRA rule 3110 (Dec. 1, 2014 effective date) holds firms to take specific steps to watch for insider trading.  Firms now have to have “reasonably designed” procedures for reviewing securities transactions for illegal or violative trading in a covered account.    Exchange Act section 15(f) requires broker-dealers to have and enforce written P&Ps reasonably designed to prevent their employees from misusing material, non-public information.

FINRA expectations

FINRA has underscored the need for broker-dealers to be ever-vigilant in safeguarding material, non-public information.  The SRO suggests firms should periodically assess information barriers and risk controls to ensure they are adequate.  FINRA expects firms to monitor employee trading activity both inside and outside the firm to identify suspicious activity and to conduct regular reviews of proprietary and customer trading in securities that are placed on a restricted/watch list.

Cases going forward

Interestingly, the government’s ability to bring insider trading cases recently took a hit via a court case.  A 2nd Circuit U.S. Court of Appeals decision in U.S. v. Newman stated that the government’s case lacked evidence that the defendants knew if the original tippees received any benefit for passing on their confidential information.  The Newman standard for insider trading has led to proposed legislation to clearly define the offense of insider trading under the law and to strengthen the prohibition on insider trading.

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