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- Sarah ten Siethoff is New Associate Director of SEC Investment Management Rulemaking Office
- Catherine Keating Appointed CEO of BNY Mellon Wealth Management
- Credit Suisse to Pay $47Mn to Resolve DOJ Asia Probe
- SEC Chair Clayton Goes 'Hat in Hand' Before Congress on 2019 Budget Request
- SEC's Opening Remarks to the Elder Justice Coordinating Council
- Massachusetts Jury Convicts CA Attorney of Securities Fraud
- Deutsche Bank Says 3 Senior Investment Bankers to Leave Firm
- World’s Biggest Hedge Fund Reportedly ‘Bearish On Financial Assets’
- SEC Fines Constant Contact, Popular Email Marketer, for Overstating Subscriber Numbers
- SocGen Agrees to Pay $1.3 Billion to End Libya, Libor Probes
- Cryptocurrency Exchange Bitfinex Briefly Halts Trading After Cyber Attack
- SEC Names Valerie Szczepanik Senior Advisor for Digital Assets and Innovation
- SEC Modernizes Delivery of Fund Reports, Seeks Public Feedback on Improving Fund Disclosure
- NYSE Says SEC Plan to Limit Exchange Rebates Would Hurt Investors
- Deutsche Bank faces another challenge with Fed stress test
- Former JPMorgan Broker Files racial discrimination suit against company
- $3.3Mn Winning Bid for Lunch with Warren Buffett
- Julie Erhardt is SEC's New Acting Chief Risk Officer
- Chyhe Becker is SEC's New Acting Chief Economist, Acting Director of Economic and Risk Analysis Division
- Getting a Handle on Virtual Currencies - FINRA
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FINRA Insider Trading Surveillance Group – AN INSIDE LOOK
by Howard Haykin
FINRA’S FDMI UNIT AND INSIDER TRADING SURVEILLANCE.
Created in 2009, shortly after the Madoff and Stanford scandals, the Office of Fraud Detection and Market Intelligence centralizes FINRA's review of allegations of serious fraud and significant investor harm, and serves as a central point of contact, both internally and externally, on fraud-related issues. FDMI consists of 4 units: (i) The Insider Trading Surveillance Group; (ii) The Office of the Whistleblower; (iii) The Fraud Surveillance Group; and, (iv) The Central Review Group.
THE PROCESS AT THE INSIDER TRADING SURVEILLANCE GROUP (“ITS GROUP”). The ITS Group, which employs 37 people, uses electronic surveillance programs to monitor millions of trades in some 15,000 equities, debt and options securities. The ITS Group operates largely on behalf of U.S. exchanges, which hires FINRA to conduct their surveillance.
In its search for unusual trading patterns, ITS Group will not discount situations where there is very little variation in either volume or price movement. That is because market professionals who trade on insider information typically go to great effort to minimize unusual market price movements that might otherwise trigger investigations.
Once unusual trading is detected, the ITS Group will generally proceed, as follows:
- Seek out material news announcements to determine what event (news or transaction) instigated the market movement (mergers usually account for 60% of the cases).
- Get chronological information from any and all players in the event’s universe: investment bankers; company management, printers; etc.
- Obtain trade data from Blue Sheets.
- Compile a list of people or entities that traded profitably or suspiciously (the “ID List”).
- Ask all major players if they provided insider information to anyone on the ID List. (the answer is invariably ‘no’.)
- Obtain account statements for the trades in question to determine if the people and entities on the ID List had ever traded in the target securities.
- Search social media sites for relationships between or among transactional insiders and people and entities on the ID List – e.g., Facebook, Google, LinkedIn, Twitter.
- Draw conclusions as to possible/probable insider trading cases and refer these cases to the SEC (when not under FINRA’s jurisdiction) or within FINRA for further investigation.
- In 2017, FDMI referred 855 cases to the SEC - half involved insider trading.
- Investigation will be recommended even where people or entities may have made little or no profits on the trades – so long as insider trading was involved.