The U.S. Securities and Exchange Commission (SEC) is currently evaluating the adequacy of policies at investment advisory firms to prevent the misuse of confidential information for illegal trading advantages, according to a senior official.
This initiative is part of a larger effort to identify and address insufficient internal controls against insider trading, as stated by Gurbir Grewal, the SEC's director of enforcement.
Grewal expressed concerns that despite the risks of incarceration and fines, insider trading remains a persistent issue. He emphasized the necessity for firms to enhance their internal policies to combat such abuses effectively.
The SEC's focus extends beyond traditional equity markets, targeting the potential exploitation of non-public information through complex instruments like swaps or derivatives, or to conceal wrongful acts.
Although Grewal did not confirm any specific enforcement actions, the SEC under its current Democratic leadership is exploring innovative approaches to curb insider trading.
A recent legal triumph in a case of "shadow trading" signals a shift towards broader interpretation of insider trading laws. This has prompted organizations to reassess their policies to prevent the misuse of sensitive information more comprehensively, according to Perrie Weiner, a securities litigation attorney.
Weiner noted that the SEC seeks policies that not only prohibit trading based on insider information but also restrict trading related to any company that could be affected by that information. This approach is applicable to both public companies and private entities like hedge funds that might access confidential data through their advisory roles.
In a move to enforce compliance with these standards, the SEC has also been addressing violations of fundamental rules at financial institutions. For instance, Morgan Stanley and a former executive recently settled for over $249 million for not adequately enforcing policies to prevent the misuse of non-public information.
