Insider Trading: Potential Employee Conflicts of Interest Documented Safely

Rule-based Monitoring of Securities Transactions

(PresseBox) ( Immenstaad, )
Not all banks are sufficiently well positioned to technically manage the risks that employee trading poses. The European Market Abuse Directive (2003/6/EU) prescribes monitoring of employee trading for compliance with regulations, investigation of unusual transactions, and concluding documentation. Market Abuse Insider Dealing Detection System (MAID) offers efficient, rule-based monitoring, which Innovations Softwaretechnologie GmbH, Immenstaad, presented at the European Banking and Insurance Fair (E.B.I.F.) 2007.

Examples of market abuse and insider trading have come to light more frequently in recent months, lack of controls has facilitated sharing of insider information and market price manipulations.

"It is absolutely necessary to take appropriate measures to counteract financial and reputation risks that are identified,“ Walter Pitz, Managing Director of Innovations Softwaretechnologie GmbH, emphasized. "Monitoring statutory requirements and each institution's internal rules requires complex process management that is simply not possible without technical support." The sources of error are too great, Pitz knows, in manual evaluations of paper-based insider reports or lists administered in Excel sheets.

The Market Abuse Insider Dealing Detection System (MAID) from the software forge in Immenstaad , Germany, offers compliance officers efficient support for defining and monitoring test scenarios for employee trading for their own account, handling of insider information. This way transactions, orders and master files can be monitored automatically and unusual incidents investigated.Possible test scenarios include: specifically-triggered reviews such as monitoring trading restrictions for persons in companies defined in the securities based on a specific incident (such as insider notification, wall crossing), but also including transaction monitoring with respect to defined patterns (like front running, for example).

Employee transactions for their own account can be checked in MAID, for example, for offsetting trades in the same security. Minimum holding periods for all employees or special holding periods for relationship managers are kept under observation just as the maximum number of transactions per time interval (for instance, a maximum of 20 per month and employee) and reviews of large transactions by relationship managers or traders within certain time periods prior to or after customer transactions.

Unusual trading events uncovered through automatic review, trigger further investigations, depending upon the degree of risk involved. So for example, an electronic form for investigation and documentation is generated for every hit. All information required for the investigation is indicated to the user. Through work flows, other employees or departments can be involved automatically in the investigative process. An escalation mechanism ensures as well that investigations are carried out in a timely fashion. All input into the system is archived.

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