Shadow Trading Part Deux: SEC Doubles Down on Shadow Trading Theory
The Securities and Exchange Commission (SEC) has made significant strides in its enforcement efforts against insider trading, particularly in the realm of “shadow trading.
WHO’S LURKING IN THE DARK?
Bring Shadow Traders To Light
The newest threat against a fair financial market—shadow trading. Let StarCompliance arm you with the power to put a stop to shadow trading before it can start.
A NEW THREAT
What is shadow trading?
Shadow trading can be described as a variation of insider trading in which individuals use material non-public information (MNPI) from one company to trade in the securities of another, closely correlated or economically linked company. For example, if a trader has knowledge of an upcoming merger between two pharmaceutical firms, they may trade in the stock of a third pharmaceutical company they predict will be affected. The Securities and Exchange Commission (SEC) has only recently recognized shadow trading as grounds for penalty.
For compliance, trying to identify these correlated or economically linked companies—especially in complex industries—demands significant time and manual research, which no one has the time for. However, risk mitigation is a necessity.
BUILDING A DEFENSE
Simple, automated workflows
Star ingests pricing and reference data on more than 35 million global securities—and more than half of those ingested have a GICS code. By using GICS in conjunction with Star’s configurable rules engine, GICS controls can be applied to both pre-clearance and surveillance workflows, and can be applied to user groups, roles, locations, and even individuals.
In pre-clearance, the system can deny any transaction of a security in the restricted sector. In surveillance, the system can generate cases for trades executed in a security that’s in a restricted sector.
Compliance can also define industry restrictions around significant business deals. Employees on the deal team can be blocked from trading or watched with a silent alert for any trading attempts.
DATA DEFINED
What is GICS?
GICS—short for Global Industry Classification Standard—is one of the most popular coding schemes used today. GICS codes are defined on four levels: 11 sectors, 25 industry groups, 74 industries and 163 sub-industries. Restrictions can be set in Star at each of these levels, giving compliance complete flexibility over how wide to cast the net and who, at an employee level, is in-scope.
On-Demand Configurability
Extensive, rule-based pre-clearance and surveillance workflows are highly configurable, allowing you to restrict trading activity as broadly or narrowly as your firm sees fit—and apply specific rule sets by department, job role—even down to the individual.
Comprehensive Market Data
Star provides a broad range of data to help identify securities linked to business entities, industries, and economic activity types at your disposal—including GICS and pricing and reference data available on more than 35 million securities.
Actionable Intelligence
Receive real-time alerts and trigger automatic case creation when employees trade—or attempt to trade—on specific companies or industries you’ve established restrictions against.
List
Management
Create and manage watch, restricted, and blackout lists from one system using security identifiers and employee data to maintain lists with accuracy and make updates with ease.
WHITEPAPER
S&P Global Shadow Trading
An investigative look into corporate insiders attempts to circumvent insider trading restrictions by using private information to facilitate trading in economically-linked firms, a phenomenon we call “shadow trading.”
Related Solutions
Actively manage employee trading in the context of current market activity and news events to protect your company’s reputation.
Ensure employee personal trading and investments comply with all regulatory requirements and company policies.
Capture and monitor the flow of material non-public information within your firm
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