Insider trading: How can HR stop this menace?

by Miklos Bolza26 Oct 2015
Insider trading can be incredibly damaging to an organisation through lost finances, a damaged reputation and the cancellation of key financial deals. The recent case of Carlyle Group firing one of its key dealmakers for insider trading is a timely reminder for HRDs in the banking and finance sectors about their roles in preventing this type of situation from occurring.
 
The bad news is insider trading can be very difficult to detect when it happens. There is also very little that can be done to prevent someone from deliberately engaging in such an act if they desire.
 
However, there are still some strategies HR can engage in if they wish to minimise the risks of insider trading, Dayne Ho, partner at Shook Lin & Bok, told HRD.
 
“One area that HR can help in is to educate employees on what constitutes insider trading. The advantage of this is that it may be able to help prevent or reduce incidences where insider trading occurred because an employee did not know it was prohibited or that certain acts might be misconstrued,” he said.
 
Ho also advised HR to work closely with legal and compliance to consider whether there should be blackout periods during which employees are not permitted to trade in public shares.
 
While listed companies would already have such rules in place, this strategy “could be relevant to employees of organisations that provide services to listed companies and who may thereby obtain insider information,” he said.
 
During the recruitment process, Ho recommended doing background checks with regulators such as the Monetary Authority of Singapore (MAS) if there is a possibility the employee will have access to insider information once hired.
 
“Some of these sites will publicise the names of persons who have been investigated or found guilty of an offence,” he said.
 
In the event an employee is discovered engaging in insider trading, Ho notes that there is no “hard and fast rule” outside of terminating that employee’s contract. Other options may include:
  • Conducting an internal audit to ensure insider trading isn’t prevalent in the company
  • Issuing a press or media release assuring business partners, contacts and other important parties that these incidents are the exception rather than the rule
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