INSIDER TRADING

Republic of the Philippines

  1. Definition

    "Insider trading" is a term that broadly refers to unlawful trading in securities by persons who possess material nonpublic information about the company whose securities they buy or sell, or about the market for such securities.

  2. Prohibitions Against Insider Trading

    1. Rule 10b-5 under the Exchange Act

    2. Article III, Sections 1 and 18 of the NASD Rules of Fair Practice

  3. Elements of a Violation and Proof Thereof

    1. Violation by Insider Trader (See "Proof Checklist")

    2. Inadequate Supervision Violation (See "Proof Checklist")

  4. Summary of Examination Procedures

    1. These examination procedures for insider trading are applicable primarily to integrated firms; i.e., those which provide investment banking/corporate finance services to clients while also providing research/advisory services, retail sales and trading functions.

    2. The examination emphasis is on the adequacy of the firm's own supervisory procedures to protect against insider trading. For various reasons, including the monitoring by the NASD Market Surveillance Section for insider trading, the examiner need only inquire into a limited sampling of employee and firm transactions for possible insider trading.

    3. The examiner should, therefore, determine:

      1. Whether the firm has adequate written procedures to restrict access to nonpublic information obtained by one of its departments; i.e., the so-called "Chinese Wall" procedures;

      2. Whether the firm has adequate written procedures to monitor for insider trading by firm employees and their families prior to any major news announcement or otherwise;

      3. Whether the firm has adequate written procedures to monitor for insider trading by officers, directors or key employees of a client-issuer;

      4. Whether the firm has reasonably carried out its monitoring responsibilities in each of the above areas;

      5. Whether the firm has reasonably carried out its monitoring effort, any indication of insider trading by the firm, any employee or any customer; and

      6. Whether any other source, including the NASD Market Surveillance Section, has provided information indicating possible insider trading by the firm, any employee or any customer.

    4. To accomplish the above, the examiner should follow the steps in the draft examination module. Essentially, they are:

      1. Review the firm's written supervisory procedures for content and adequacy;

      2. Review a sampling of the records specified in such procedures to check for implementation;

      3. Review any other records specified in the module to determine the adequacy of the firm's prevention and detection procedures;

      4. Interview the firm's supervisor(s) who is responsible for these areas, particularly as to the details of any monitoring; and

      5. Interview any employee in the investment banking department for his/her knowledge of the firm's "Chinese Wall" procedures.