Appendix A – Insider Trading Red Flags 

There are “red flags” that indicate possible insider trading activity. Dealers should have trading surveillance which would detect this kind of activity and train their employees to watch for and report any suspicious client activity to management.

Since an order for an insider must be so indicated upon entry, a Dealer’s compliance department should have available a report of all insider trades.  The report could provide a basis for trading reviews to identify the following:

  1. A change in the pattern of trading activity of an insider account from inactivity to trading, or from buying and selling to abruptly aggressively buying or selling a significant position in the security.
  2. Immediate buying or selling of a significant inside position by a new insider account.
  3. Orders placed by an insider outside of the recent trading range, for example, a buy order at $1.20 when the recent trading range was from $.90 to $1.00.
  4. An insider account making a significant profit on a quick flip in the security, or liquidating the security position and then re-establishing it at a more favorable price.
  5. New accounts (non-insider accounts, but may be nominee or “tipped” accounts) that immediately take a substantial position in the security which is traded for a quick profit.  The accounts may belong to a nominee or have received an insider tip.
  6. A pattern of consistent profitable trading by an insider or other account in the security prior to a news release.
  7. Trading activity by insider accounts and the accumulation of significant positions in the security by other accounts immediately prior to the security being placed on the Dealer’s Grey List or during the time the security is on the Dealer’s Grey List

Dealers’ reviews of Grey List or Restricted List trading should include insider accounts (as referenced above).

Dealers should ensure that all their traders and Regulated Persons are aware of their Gatekeeper obligations (per the Universal Market Integrity Rules) to report suspected insider trading violations to their respective compliance departments.

“Dealers should ensure that all their traders and IAs are aware of their Gatekeeper obligations (as per the recent UMIR implementation) to report suspected insider trading violations to their respective compliance departments.”