UPDATED: April 2022
3 Ways to Prevent Illegal Insider Trading in Your Company – Insider trading has been a buzzword for the last two decades. The greatest risk corporations face with respect to insider trading is not greed or malicious intent but negligence, and this is not much discussed. Most instances of insider trading are preventable, at least on a corporate level.
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3 Ways to Prevent Illegal Insider Trading in Your Company
Some checks and balances can be installed to insulate the corporation from allegations of wrongdoing in cases of insider trading, the non-negative returns on which can be substantial. Although corporate criminal fines for insider trading are capped at $25 million, the penalties for other charges associated with insider trading activities can far exceed this number. With that in mind, we will share the 3 best practices for preventing illegal insider trading in your company.
Restrict Risky Trading – How to Stop Illegal Insider Trading
A popular strategy to reduce the risk of violating insider trading rules is to restrict employee trading on company-owned securities at specific times, such as the weeks around when earnings reports come out. Earnings reports will detail the projections for company-owned securities, and as such, while they are compiled, there may be an opportunity for those looking for privileged material information to find it and trade based on it.
This approach removes the ability to trade on any insider information at all, thus insulating the corporation by circumventing any intent to do so. A more extreme version of this tactic is maintaining a list of securities in which employees may not trade at any time.
Ensure Your Employees Are Educated On Legal Insider Trading
Legal Insider trading is easier to commit than most would like to admit. Having a robust training program that not only acknowledges this but drives home just how serious the penalties for illegal insider trading are for both insiders and the companies they work for is integral. This should cover all possible instances of insider trading.
These can range from a speculative conversation on the future of a security with a family member or friend to purposefully shirking blackout periods to trade on covered securities. Hence, all insider trading can’t be prevented by the firm in which it happens. Still, the firm will be in the best possible position with these measures in place.
Appoint an In-House Watchdog – How to Prevent Insider Trading
It is so important that your company executives and legal counsel know How to Prevent Insider Trading. Instead of simply relying on your employees to submit clearance requests for trades of covered securities, one way to ensure compliance, for posterity’s sake, is to mandate employee submission of statements from the brokerages that they personally use, combined with attestations from each employee that their submissions of trades are accurate.
This can be a powerful deterrent against insider trading on the securities owned by your company. Not only are companies that implement checks on their insiders’ trades going to have more success in discouraging insider trading, but with a reputation for not looking the other way, they are less likely to be investigated by regulators.
About the Author & How YOU Can Profit: This article is the copyrighted product of the team at BuybackAnalytics.com .
Buyback Analytics is a Top Tier Investing Platform to help investors find, analyze, and profit from investing opportunities not found through traditional investment tools. We specialize in this simple concept: Follow the trades of Insiders – CONSISTENTLY PROFITABLE Traders, Investors, and Institutions because THEY get Inside Information that YOU don’t:
LEGAL Insider Trading / Inside Traders (CEOs, CFOs, Corporation’s Accountants & Attorneys, Politicians, etc.)
Stock Buybacks (Share Repurchases) by Public Corporations (ie. Apple, Tesla, Netflix, Meta (Facebook), Microsoft, etc.)
Market Moving Institutions (Examples: Market Makers, Investment Banks, Stock Brokerages, Hedge Funds, etc.)
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