Fraud Risk Scenario:
A financial analyst at a major investment bank has access, as part of an ongoing merger and acquisition operation, to confidential information about the upcoming acquisition of a listed company. Just before the public announcement that will drive up the target company’s share price, he discreetly opens an account with another intermediary and purchases a significant quantity of that company’s shares.
Detection:
Analysis of unusual transactions: Monitoring of trades on specific assets that are abnormally large or rare compared to the investor’s historical profile, especially just before a sensitive announcement.
Cross-checking insider lists: Systematic verification of transactions made on the securities concerned by employees and their families, cross-referenced with the list of individuals who had access to confidential information.
Market alert monitoring: Investigations triggered by unusual price movements or trading volumes on a security, as reported by regulatory authorities (such as the AMF in France).
Audit of personal portfolios: Regular and random checks to ensure compliance with personal trading disclosure policies and consistency between declared portfolios and actual held accounts.
Prevention:
Mandatory declaration of portfolios and transactions: Strict requirement for all sensitive employees to declare their personal portfolios and obtain prior approval for any transaction.
Confidentiality clauses and training: Signing of reinforced confidentiality agreements and mandatory annual training on insider trading offenses and their legal consequences.
Chinese Wall: Implementation of strict procedural, physical, and IT barriers between departments (e.g., Corporate Finance) with access to confidential information and trading departments.
Restricted and Watch Lists: Inclusion of securities involved in ongoing sensitive operations on internal lists that either prohibit transactions or recommend extreme caution for employees.
Share Your Feedback:
What tools, techniques, and processes are used to detect and prevent such insider trading risks?
