Insider Trading Prevention Tips You Need To Know To Save Your Company

Insider trading prevention is necessary if you want to maintain the reputation and integrity of your company.

However, not all insider trading is illegal. For example, the authorities, management, and employees can purchase and sell stocks if the company policies allow them to. Also, it is important to disclose transactions to the Securities and Exchange Commission.

To learn how to prevent insider trading in your company, read on to the end of the article.

Insider Trading Prevention: A General Overview

Insider trading is a serious problem. It can cause irreparable damage to your company?s reputation. Also, it can lead to hefty fines and even jail time for those who commit the crime.

Generally, every company has some material and non-public information. In this case, insider trading is illegal when the employees and representatives of the company share that information with their friends, family, or fund managers. On the other hand, if someone who is not part of the company gets that information, it is also an illegal form of insider trading.

Top 7 Insider Trading Prevention Tips

Fortunately, there are steps you can take to prevent insider trading from happening at your company:

1. Check the Background of Your Employees

Check the employee?s background, especially in terms of criminal or financial records. For instance, if the employee has a criminal record, hiring the employee can be risky. Also, hiring an employee with a bad financial record can also be perilous for the business in the long term.

Also, you can ask the employee whether there are pending debts or legal issues before hiring. Moreover, you can always hire a criminal solicitor in Sydney who could perform these background checks.

2. Outsource Insider Trading Review Processes to Another Firm

Small B Account, which offers bookkeeping services in Melbourne, suggests that hiring a third party to review your policies is effective for insider trading prevention.

However, make sure that the firm you hire focuses only on the objective and has no vested interest in your company. Thereby, they will not try to protect someone who violates company policies.

Also, make sure that the firm has experience in this field and has a good reputation for doing thorough reviews. You don’t want to invest a lot of money into getting them on board, only to find out later that their report was inaccurate or incomplete. Hence, hiring a team of experts is the best way forward.

Lastly, make sure that any firm you hire is not too expensive. Basically, you don?t want them taking advantage of your company simply because they know how much money it makes!

3. Do Not Neglect Warning Signs

The second step is to look for warning signs. Sometimes, insiders will tip their hands and give away their intentions by engaging in unusual trading activity.

For example, an insider might buy a bunch of company shares just before the announcement of earnings. Then, they sell them right after the news hits. Such trades depend on non-public information. Basically, this is obtainable only by someone with inside knowledge of a pending event or development at the firm.

4. Consult the Problem with Experts

It’s common for insiders to use consultants and expert networks to communicate sensitive information. Companies or individuals hire consultants to provide advice on a particular subject matter. At the same time, expert networks consist of people with similar expertise.  Generally, these people come together via online websites or conferences.

What should you look for when hiring an expert? Make sure you hire individuals who have experience with companies in industries similar to yours. For example, someone who previously worked at IBM but now works at Google might know some things about how both of those companies operate.

This is useful because if there were recent changes in their previous company, then they know how to perform change management!

5. Ensure Proper Creation and Implementation of Policies

You can’t expect people to follow your insider trading prevention policies if you do not raise awareness. Primarily, you need to ensure everyone understands the policies and take steps to monitor their compliance. Basically, creating a policy is just the first step toward ensuring that everyone follows it.

The next step is enforcing the policy by taking action against those who violate it. That usually means firing an employee who violates the policy. However, there are other ways to enforce compliance as well (such as suspending them).

Actually, your insider trading prevention policy should be easy for employees to understand and implement. Also, it is even more important to make sure your employees know exactly what they need to do when there is a violation. Moreover, employees have the knowledge and capability to prevent any violation.

Furthermore, make sure that any punishment fits both the violation itself and your organization?s culture. Hence, no matter how much money someone makes or how many years they?ve spent at your company, getting fired isn?t necessarily going to ruin their life.

6. Refer to Watch Lists to Stay Alert

Watch lists are another way to stay on top of insider trading activity. This can be particularly useful for investors who want to keep an eye on a company but don?t have the time or money for full-scale monitoring.

Watch lists from an insider trading lawyer allow you to set up alerts when someone buys or sells stock in a specific company. Basically, you can use them to identify potential cases of insider trading. Also, when creating a watch list, it?s helpful to think about what kinds of transactions you want to track.

Do you only want information about large transactions? Or do smaller trades matter, too? How far back should your data go? These questions can help determine the type of watch list you create and how long it will track information for.

Once you create your watch list, make sure you receive any suspicious red flags within 24 hours. This will help you to take action on them immediately. Furthermore, you can prevent someone from profiting off their inside knowledge before anyone else knows about it!

7. Take Proactive Measures

There are two types of insider trading prevention measures: proactive and reactive. Proactive measures are more effective and cost-effective and you can implement them before insider misuse even occurs. A single person or small team can take proactive measures that may prevent future problems from occurring in the first place.

On the other hand, you can take reactive measures after the occurrence of an incident. However, they are often ineffective because they require someone to monitor what’s going on around them continuously.

Final Thoughts

Insider trading prevention is a challenge, but there are tools you can use to protect your company from it. However, if you do not have the right knowledge, you must reach out to an expert who can help. This way, you can take the necessary steps to prevent insider trading in your organization.

Do you have more suggestions for insider trading prevention? Please share your ideas and opinions in the comments section below.

Read Also:

• What Is A Business Credit Report
• Smart Hacks to Manage Your Personal Credit Effectively
• What Not To Do When Applying for a Small Business Loan?
• What Is A Small Business Line Of Credit? Everything You Need To Know In 2022