Insider trading is persistent problem in the stock exchange. Access to material non-public information (MNPI) can lead to serious charges, with huge fines and lengthy prison sentencing.
Now that the emergence of the COVID-19 coronavirus has generated a global economic panic, new worries about insider trading have entered the picture. Market volatility opens new doors for illegal trading based on emerging MNPI information.
It’s important to recognize the risks of insider trading. It’s even possible to commit the offense due to negligence.
Don’t let bad trading practices strike you down
Awareness of some securities trading best practices is your first line of defense against this risk, especially as the novel coronavirus pandemic begins disrupting the market.
The following are some basic measures to consider:
1. Avoid risky trades: in a corporate setting, one practice that protects against insider trading is restricting timeframes when employees can trade on company-owned securities. This avoids enabling insider information around the timing of earnings reports and other information releases. Similarly, don’t act on a trade if you do come across non-public information.
2. Use software that tracks and monitors trades: technology provides ample space to keep tabs on trading, including software that can automate the process.
3. Employ whistleblowers and watchdogs: Some companies have a dedicated watchdog on staff, while others designate employees as whistleblowers who agree to notify the U.S. Securities and Exchange Commission (SEC) in the event that insider trading is detected.
4. Get educated: whether you’re an employer or an employee at a corporation, make sure there’s ample awareness of the pitfalls of insider trading, including ways that non-public information can just “fall into your lap,” and all of the considerations to make before acting on a potential trade.
While it can be difficult to prosecute insider trading, the consequences can still be heavy. It’s important to speak with a defense attorney before doing anything else if you’re suspected of it. It’s even more critical that you heed advice about preventing it from even coming into question – especially when the market is volatile.