There is a leak about the dismal performance of a company, even before the CFO files the report in the earnings call. One of the employees passes this information on to a friend and suggests selling all the shares immediately. It is the insider information that leads to illegal insider trading.

The first word “insider” translates into an individual inside a company or an individual who works for a business. The last word “trading” refers to buying and selling of securities/shares. Illegal insider trading is set into motion when insiders want to benefit from the company information at the cost of the company.

Alongside the laws, compliance measures and culture put in place to negate illegal insider trading, technology lends incredible support in detecting illegal insider trading as early as it can get.

Who knew what and when?

There is the incident of Burger King announcing a tender offer from Tim Hortans. Prior to the announcement, the stock moved almost 15%, statistically abnormal event, for THI US, did anyone at your Organization transact during that time and if so, can you defend it?

In another case, BGC offered $575M for the remaining shares of GFIG. The day before, share rose over 10%. Exactly the activity that the SEC systems and quants will search for. Did your firm trade it? Are you prepared for the call?

When organizations are found guilty, penalty is huge. Billions of dollars have been collected as fines over the last several years.

How to ‘spot’ illegal insider trading?

There are preventive practices that corporations put in place to prevent illegal insider trading – in-house watchdog, employee awareness about illegal trading and restrictions to avoid trading rules violations are some measures in place. Technology is a force to reckon with in terms of empowering corporations to monitor, track, spot and stop illegal insider trading.

For a leading Trading Surveillance Technology Company that wanted to strengthen its capabilities to spot and stop illegal insider trading, we built an analytics-powered solution. What grew in significance was how the solution helped the client read patterns in data to detect illegal insider trading.

 In creating a surveillance mosaic, the company programmatically combined client intraday trading data and accounting data (EOD Delta), adjusted exposure, P&L and holding measures to fall in sync with market information – this was done to gain a complete picture for analysis. The trading surveillance technology company also uses proprietary search algorithms to uncover statistically anomalous investment activity. The findings are deemed as Items of Interest or as we call that as IOI.

We worked around the core of the client’s objective – enable empirical surveillance of company data to find what the regulators consider as a suspicious trading activity. This was augmented by providing surveillance and complete analysis with an Institutional quality case management system to document the research into what really happened.

The telling features of the solution included dashboards, interactive custom charts, workflow and features to drag and drop the supporting documents to the browser in being attached as a record. The key highlight was the expertise to handle various technology components as part of the solution, from native Logi info controls, embedded dot net code, and open source java script library functions, and D3.js functions.

What could be accomplished?

The analytics-powered vault helps the company to perform Empirical Analysis, data mining and big data analysis using the following:

  • Source all logical, necessary and relevant time-series and discrete market data- Prices, volume, news heat measures, earning dates and announcement dates
  • Process N-dimensional cube for Portfolio-Centric Analysis
  • Leverage economic interest trade duration, max/min exposure, max/min P&L, trading patterns, volume abnormalities, multi-fund positioning, avoidance of losses, unanticipated discrete events
  • Facilitate Cubes received in aiding the follow-up of in-house interest
  • Make a deep dive using proprietary algorithms to search for “Items of Interest”
  • Recreate life of a trade; not available from accounting systems
  • Deliver thorough and customized interactive report

This gave Saksoft the experience to make thorough, reasonable and defendable efforts towards identifying a potential threat that can lead to illegal insider trading.