Imagine a client calls your advisory firm and wants to unload a substantial position in a large pharmaceutical company. A few days after the trade, the company is denied a patent on its newest drug and its stock plunges. Or, imagine one of your advisors determines it’s an excellent time to buy into a growing software company. The following week the company announces an acquisition agreement, and its stock price soars.
Do these instances describe business acumen, good luck, or insider trading? These examples illustrate basic types of suspicious account activity that may indicate the seller or buyer had some foreknowledge that might have driven the stock price. But how can compliance officers be sure?
SS&C recently hosted a webinar explaining the integration between the SS&C Black Diamond® Wealth Platform, the SS&C Risk and Compliance Intelligence (RCI) platform, and MT Newswires, a third-party provider of firsthand reporting on events related to tradeable securities. This integration provides advisory firms with an accessible, customizable, and affordable way for compliance officers to monitor investors and employees for possible instances of insider trading.
Insider trading based on material non-public information (MNPI) is expressly prohibited by the Securities Exchange Act Rule 10b-5. Insider trading creates a fundamental fairness issue and an "unlevel playing field" between the average investor and the well-connected investor. Additionally, the insider’s gain is everyone else’s loss. When one trades a security ahead of market-moving news, other investors can potentially pay too much when they buy or gain too little when they sell. Ultimately, it undermines trust and confidence in the markets.
MT Newswires is a highly-respected news provider covering the global capital markets. It is not an aggregator or “screen-scraper” of news from the internet. Instead, it relies on its worldwide team of reporters and highly placed sources to generate and vet approximately 2,000 original stories daily and deliver them in near-real time. The stories are tagged and coded so they can be easily searched and found.
In simple terms, MT Newswires feeds news reports into RCI, SS&C’s cloud-based “RegTech” surveillance solution. RCI also ingests transaction, position, and account data from Black Diamond. Both the news reports and the account activity are time-stamped, so RCI can instantly recognize if a sizeable change in an investor’s position in a security preceded an announcement that significantly impacted the security’s price. The system then flags the activity for investigation, saving compliance departments from manually filtering daily news – a virtually impossible task in today's digital information environment. In addition, advisory firms can customize the solution according to a variety of criteria.
Along with helping firms identify potential instances of insider trading, Black Diamond and RCI provide evidence to regulators that you are indeed supervising employees and conducting appropriate surveillance of investor accounts as required.
Given the pace of today’s markets and the speed and volume of news cycles, technology increasingly offers the best, if not the only, solution for truly protecting your firm and your clients from breaches of trust like insider trading. The recent webinar dives deeper into the workings of the MT Newswire integration and the ease of implementation. If your firm needs assistance complying with regulations around surveillance and supervision, we invite you to watch the recorded webinar, Monitoring Your Investors and Employees for Insider Trading.