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Exchanges Agree to Consolidate Insider-Trading Programs Under SROs
August 13, 2008
The surveillance, investigation and enforcement of insider trading at ten U.S. equities exchanges is being consolidated under NYSE Regulation and the Financial Regulatory Authority (Finra), the self-regulatory organizations (SROs) announced today.
Under the agreement, the exchanges will delegate responsibility for detecting insider trading to NYSE Regulation for securities listed on the New York Stock Exchange and NYSE Arca and to Finra for those listed on the American Stock Exchange and Nasdaq Stock Market. Also participating in the consolidated program are the International Securities Exchange, which Finra oversees; the self-regulated Boston Stock Exchange, Chicago Stock Exchange, National Stock Exchange and Philadelphia Stock Exchange; and the CBOE Stock Exchange, which is supervised by majority owner Chicago Board Options Exchange.
“This breakthrough agreement will allow NYSE Regulation and Finra to implement across markets their state-of-the-art insider-trading surveillance and investigation programs for all listed securities in the U.S.,” said NYSE Regulation chief executive Richard Ketchum in a statement. “A focused, consolidated review strengthens our ability to prevent anyone from profiting from insider information.”
Currently, each exchange conducts its own program and cooperates with other venues when potential insider-trading activity is discovered. NYSE Regulation--the Big Board’s independent regulatory arm--and Finra operate sophisticated surveillance programs that identify potential abuses in real time. When suspect activity is identified, the staff conducts an in-depth review using advanced analytical tools, news reports and other information sources.
John Malitzis, head of NYSE Regulation’s market surveillance division, said in an interview that the agreement “gives us a better view of insider trading across all markets [and] focuses responsibility onto the primary market regulators.”
This is significant, said Malitzis, because NYSE Regulation and Finra have greater technical resources and staff to devote to insider trading. In essence, the exchanges “can offload the responsibility to us,” he said. “This is the kind of thing that we really do well. The regional [exchanges] would have to devote substantial resources to a program like this. We can do it for them, and we are happy to do that.”
Today, he explained, an exchange that suspects that one of its members is involved in insider trading has the sole responsibility for going after that firm. NYSE Regulation, however, “can look at things in a very holistic way, both NYSE members and non-members.”
“While U.S. equity markets have always coordinated very well with each other to detect and investigate insider trading, this agreement takes insider-trading surveillance to a new level because it consolidates within Finra and NYSE Regulation what used to be … discrete programs at each market center,” said Finra senior EVP Stephen Luparello. “As a result, potential insider traders, whether acting alone or in concern with others, and regardless of where they trade in the U.S., will be more readily identified in this new, more unified structure.”
The agreement, which has been filed with the Securities and Exchange Commission and is available at www.nyseregulation.com, was made pursuant to rules that allow the commission to approve plans for the allocation of regulatory responsibility among SROs.
