Resource hub powered by Diligent

Managing Insider Trading

For public companies, insider trading compliance can be challenging. While some companies have the resources dedicated to creating policy and mandating regulation, other companies feel that having no oversight may better serve the company should an incident occur. This perspective isn’t just for smaller, resource strapped corporations but also larger ones who deal more regularly with the SEC on other matters. While this can expose a corporation to liability under the Securities Exchange Act of 1934 due to not having a designated “control person,” rarely is this charged. Instead, companies are most vulnerable when it can be shown that they knew about insider trading and did not prevent it, which is significantly harder to prove.

Insider trading can have numerous long-term effects on a company beyond just any regulatory changes imposed by the SEC or other organizations. One of the largest is the reputational damage that can occur to a brand when they’re embroiled in an insider trading scandal. No matter the scale or depth, the very-public coverage of any corporate governance or financial scandal in the modern media can leave a lingering effect for any brand. The associated legal fees, required training and time spent from employees to manage the incident can also prove equally costly.

Insider trading can also be difficult to identify. In many cases, members of a company are allowed to purchase and sell stock. It is, however, illegal to share any privileged or controlled information with others. It’s also illegal for those not a part of the organization to act on any information they become aware of – such as when a fund manager learns of a non-public market change related to a corporation. The proper entity management tool, however, can help make it easier for employees and corporations alike to understand the key differences in insider trading regulations and avoid incident all together.

Corporate Culture & Insider Trading

While company spokespeople will often try to minimize such scandals by placing blame on a few bad actors, what is clear in many cases is that something in the company’s corporate culture has encouraged or allowed the problematic behaviors to exist. Writing for the Brookings Institute, Larry D. Thomson described corporate culture as, “a web of attitudes and practices that tends to replicate and perpetuate itself beyond the tenure of any one individual manager.” If corporate reputation is the story outsiders are telling each other about your company, then corporate culture is the story insiders are telling themselves about the company. Framing this story is an important part of creating a productive, positive place for your company and employees.

How to Comply With Market Abuse

Market abuse is defined as behavior that intentionally harms the integrity of markets. Most frequently, this takes two forms: insider trading and market manipulation. Insider trading is well known as the use of knowledge not available to other investors in order to profit from trading in financial instruments.

Diligent Entities offers a number of elegant and practical solutions to the problems of MAR compliance. It allows batch adding and editing of insider subscriptions, tracks details of close periods, projects and permanent sections with their associated insiders, and the efficient production of MAR reports for regulation authorities.

Diligent is here to help your organization have the right tools, insights and analytics

Request a demo, pricing or more info to see how.

Or give us a call at:

1.877.434.5443