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Strategies To Prevent Insider Trading At Your Company

The European Union enacted the Market Abuse Regulation (MAR) to protect the integrity of the markets and provide companies with a framework to prevent insider trading and the unlawful disclosure of inside information.

As a result, the sanctions for insider trading, also known as insider dealing, can potentially reach €5 million for a natural person and €15,000,000 or 15% of the annual turnover from the last available accounts for legal entities. So, it is in the interest of all market participants and their employees to avoid insider trading.

With the potential for financial punishment https://www.maritimjatim.info/ and reputational damage for non-compliant behaviour, it is important you put in place systems and strategies to minimise this risk. This article explores the steps you need to take.

1. Definition of insider information

“information of a precise nature, which has not been made public, relating, directly or indirectly, to one or more issuers or to one or more financial instruments, and which, if it were made public, would be likely to have a significant effect on the prices of those financial instruments or on the price of related derivative financial instruments.”

This might be information relating to a merger or acquisition, a financial shock to an organisation, an impending huge deal or anything else likely to significantly affect the price of a financial instrument in the future.

2. Definition of insider trading

MAR uses the term insider dealing, but it is interchangeable with insider trading. The regulation offers the following definition:

“insider dealing arises where a person possesses inside information and uses that information by acquiring or disposing of, for its own account or for the account of a third party, directly or indirectly, financial instruments to which that information relates.”

Essentially, if a person or someone they know benefits from non-public information that the person has access to, they will have an unfair advantage over the rest of the market. This also causes an

imbalance and skews the market, adding to volatility. This is why the EU is keen to provide dissuasive sanctions.

3. How to prevent insider trading

An example could be developing a new product with the potential to change your sector. In the early design stages, it might not gain much interest if made public as it is still only an idea. However, once you have a working prototype that shows it can achieve what it intends to, this might cause a sensation if made public. This is when the information about this development is likely to become inside information.

In this situation, some companies compile a confidential list that ensures all people with knowledge of it understand that there is the potential for it to become inside information and that they should be prepared for their responsibilities if this occurs. A confidential list is not a legislative obligation.

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