More Efficient Oversight of Insider Trading

Posted on August 14, 2008 by Jack J. Gravelle

The major U.S. securities exchanges and self-regulatory organizations have agreed to consolidate oversight of insider trading in the hands of two regulators: NYSE Regulation and FINRA. The following equity exchanges and FINRA have signed the agreement, which must now be approved by the SEC:

  • American Stock Exchange LLC
  • Boston Stock Exchange, Inc.
  • CBOE Stock Exchange, LLC
  • Chicago Stock Exchange, Inc.
  • International Securities Exchange, LLC
  • NASDAQ Stock Market, LLC
  • National Stock Exchange, Inc.
  • New York Stock Exchange, LLC
  • NYSE Arca Inc.
  • Philadelphia Stock Exchange, Inc.
  • NYSE Regulation, Inc. (acting under authority delegated to it by NYSE)

Currently, each securities exchange is responsible for investigating insider trading by its market participants, which amounts to 11 separate programs. The consolidation of power into two regulators is expected to make insider trading investigations more efficient by preventing duplicative efforts and failed detection of illegal activity.

The consolidation may result in more convicted insider traders, or it may simply result in more efficient investigation of insider traders who would have been caught anyway. The Wall Street Journal's MarketWatch reports FINRA has already referred 104 insider trading cases to the SEC in 2008, compared to 118 in all of 2007. NYSE Regulation has referred 90 cases as of the end of June, compared to 141 in all of 2007.
 

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walter gangl - August 22, 2008 8:27 AM

This is a good development to improve effectiveness of outside oversight, but as good as this is, it is more important that firms that come into possession of inside info be obliged to institute and enforce truly effective procedures to safeguard that info and then police any violations. When that happens, you will see a dramatic drop in tipping and illegal insider trading.
If regulatory groups won't make that happen, then companies who want a level playing field for trading for their shareholders should require by contract that their banks, advisors, etc. to adopt effective information security policies.

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