Fintech Security

How Businesses Can Protect Against Insider Trading Violations

How can companies get ahead of potential insider trading violations? originally appeared on Quora: the place to gain and share knowledge, empowering people to learn from others and better understand the world.

Answer by Roxanne Petraeus, CEO & Co-Founder at Ethena, on Quora:

When a person uses material, non-public information (MNPI) to trade public stock or other securities, it’s known as Insider Trading, which is illegal in the U.S.

Unfortunately, it occurs all too often, so companies need to be in the business of planning for when it happens, not if. Here are a few reasons why:

1. Insider Trading is illegal, and the consequences are no joke.

In the U.S. Federal securities law prohibits the buying and selling of a security or stock when an individual is in possession of MNPI about that security, as well as tipping others regarding that MNPI. When someone is found to be in violation of these laws, they’re at risk of significant fines and/or jail time.

2. Security laws apply to all of us.

Even if you’re not a part of a publicly-traded company, security laws still apply. If you think your team might be at risk (does anyone have access to another publicly-traded company’s MNPI, for example?), it’s smart to plan ahead and make sure everyone knows how to handle sensitive information — whether it comes through their inbox or even in casual conversation.

3. Training teaches employees to use information appropriately.

In no circumstances should employees use sensitive and non-public company information for their own personal benefit. If you’re a manager, one of the best ways to encourage employees to do the right thing (and follow the right steps when they do the wrong thing or witness someone else doing the wrong thing) is to provide the proper training. The right training can model the appropriate responses and behavior and help everyone keep each other accountable.

Because insider trading deals specifically with the public stocks and securities of an organization, it is most relevant to public companies. However, companies that want to get ahead of any potential violations should consider implementing training

if the organization:

  • Is a publicly-traded company. All employees of a publicly-traded organization are likely more privy to sensitive information than they might think initially. To help prevent an employee from misusing MNPI, even by mistake, you’ll need to ensure your team is well-prepared and well-informed.
  • Is preparing for an initial public offering (IPO). When an organization goes public, employees need additional guidance on how to operate as employees within a publicly-traded company. You’ll likely want to include information on how to prevent insider trading as part of that onboarding process.
  • Deals with the sensitive information of other organizations — especially financial information. If, for example, you work at a fintech organization where employees have access to the MNPI of another company, you’ll definitely need to underline acceptable behavior and how to handle that information appropriately. But MNPI is not limited to strictly financial information; if your employees have access to sensitive information about a public company, you should consider implementing insider trading training in that circumstance, as well.

When in doubt, check with your organization’s legal team for a better understanding. They will help you decide what is needed to better support and protect your employees and the company.

This question originally appeared on Quora – the place to gain and share knowledge, empowering people to learn from others and better understand the world.

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