31 Jul

The Use of Analytics in Insider Trading Management

The Growth of analytics:-

In May 2016, Plumber Gary Pusey was held guilty for Insider Trading. It spelled victory not just for New York prosecutors but also for a little-known squad inside the U.S. Securities and Exchange Commission that uses data analytics to spot unusual trading patterns. Having its origins in 2010, the Analysis and Detection Center of the SEC’s Market Abuse Unit cuts through billions of rows of trading data going back 15 years to identify individuals who have made repeated, well-timed trades ahead of corporate news. The trend is not limited to the United States with the United Kingdom taking measures to develop technology in order to analyze large amounts of data to pursue market abuse cases. This indicates a shift in how the agency initiates insider trading probes, which more often are launched based on referrals from Wall Street’s self-regulator Financial Industry Regulatory Authority, or an informant’s tip. The use of Analytics has only propelled in the past few years reflecting an attitude that places data above information in Insider Trading Management.

Analytics and Insider Trading Management

For starters, Analytics can be defined as the science of logical analysis. Analytics often involves studying past historical data to research potential trends, to analyze the effects of certain decisions or events, or to evaluate the performance of a given tool or scenario. The goal of analytics is to improve the business by gaining knowledge which can be used to make improvements or changes. Therefore in the case of Insider Trading Management, the idea is to

  1. Store big data accumulated over a number of years
  2. Notice patterns over months or years
  3. Conduct investigations into Insider Trading on receiving sufficient evidence

Even with a relatively new concept like data mining, traditional techniques like enlisting cooperators and issuing subpoenas for documents remain essential to building out a case. However, the SEC has maintained that it faces a challenge of keeping up with technological advances in the securities markets it regulates, where spending by a number financial firms can surpass the agency’s own expenditures. Also, the SEC’s ability to launch cases by data mining is also limited because it collects trading information on an ad-hoc basis.

Why Use Analytics for Insider Trading Management

Despite its limitations, the scope of Analytics as a detection tool with regard to Insider Trading Management has only ascended. This has been helped by the fact that, trading volume has exploded in recent years and has created a need for regulators to keep pace with and analyze vast quantities of data. The use of analytics offers various advantages namely;

  • Advanced solution to detect insider trades

Analytics leverages a list of suspicious trading behavior scenarios to help a compliance officer to monitor activities and detect trades that can eventually cause non-compliance.  This approach automatically matches market data and company news vis-a’-vis trades in employee or company managed portfolios or both, and ‘smart alerting algorithms’ alerts the compliance officer if a trade has occurred prior to or right after a market moving issuer event.

  • Reduced time and risk

A data analytics tool serves as a broad, holistic, and integrated compliance platform that helps users achieve a complete, transparent view of their employees’ and customers’ trades and reduces the cost of insider trading detection within their complete all-in-one compliance platform.

Therefore, it is all but clear that analytics is the way to go as far as Insider Trading Management is concerned. To quote Thomas Sporkin who is a former senior SEC official with the law firm Buckley Sandler –

“Doing surveillance for insider trading today—it’s like we’re in the early days of the automobile.What the consolidated audit trail will provide is the future. It’s the flying car.

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