Employers, and particularly owners of small or medium-sized businesses, have to be careful about developing a personal trading policy for their employees. Developing an in-depth trading policy could protect you from liability and even criminal charges. Do you have effective employee personal trading policies?
Not understanding or thoroughly explaining personal trading policies and practices would be dangerous specifically because non-public information should never be misused. Doing so intentionally might harm clients or compromise an entire industry or even the overall market.
Granted, not every breach would be a disastrous scenario. But the earlier you handle matters, and the more seriously you take them now, the more prepared you will be for the future.
In this article, we’ll consider some of the most important practices and rules for companies and why they matter.
Most brand-name companies require all employees who have access to non-public information to report their personal security holdings for in-house auditing on a quarterly basis. The manager in charge must maintain organization over who has access and this includes not only people who oversee non-public information, but also all supervisors, partners, and associates who would also have access for a number of reasons.
Keeping accurate and clear records to show compliance is very important. Surveillance may be conducted manually or using an automated system. Any unusual transaction that happens before market movements and that involves trading securities with common clients must be scrutinized.
Anyone giving investment advice to a client must declare all interests or conflicts of interest and have such clearly documented. Accurate record-keeping will help prevent unauthorized employee access, as well as spotlight any seemingly harmless transactions that could be breadcrumbs to illegal activity.
With more employees working from home, and not being closely monitored by management, it becomes more of a challenge to investigate compliance. Many employees on all levels of authority may regularly receive information in passing that could be considered insider information.
No wonder advisers are finding modern ways to monitor employee actions – particularly financial interactions, like employees opening new accounts or any stock trading they are doing. Many employees now have a free easy-to-access online investing account, thanks to online banks and credit card companies.
With easy access comes more responsibility in reporting. Even daily online surveillance is becoming common for pre-clearance protocols.
Besides consistently reminding employees of their ethical responsibilities, it’s very important to take a tech-approached solution to monitoring employee activity. Many companies are forgoing manual reviews and embracing technology platforms to record all trading data via software.
Retail investing, as well as what people are now calling “Reddit meme stocks”, are increasing monumentally. Multiple apps and market volatility – not to mention new tech like cryptocurrency investing — have brought on the age of stock “gamification.”
Besides tech-focused solutions, more care is being given to professional standards of behavior. These policies might include rules about never disclosing non-public information to outsiders, including family members, and not being too lax when chatting in informal social settings – where dialog could be overheard.
Educating employees to a greater extent is necessary, especially in defining what is non-public information, and teaching them ethical standards. Namely, inside non-public information should never be used as a means to induce a client to invest the information is non-public.
(And of course, it’s best not to let the behavior of politicians in the news justify any ethical decisions by employees!)
Beyond that, there is an increased need to probe the previous work history of new job candidates, and document any unusual findings. Documenting all research will be crucial in establishing evidence later on.
All employees must also embrace a culture of transparency, including reporting any reports to management or HR, involving POSSIBLE insider trading, unauthorized disclosure, or any market manipulation. Do employees understand the importance of being forthright when it comes to reporting any manipulation?
The more management educates them as to the signs to look for, the more prompt reporting issues will be, and the less likely innocent employees will be reported. If you need help with writing policies and procedures, be sure to check out our manual on the subject.
Developing a detailed plan is pertinent to the long-term survival of your business, and your life, considering that penalties of over $500,000 could be issued for something as simple as not disclosing potential conflicts of interest.