SEC Announces Proposed Plan To Enhance Insider Trading Surveillance And Detection

by Mike Godfrey, for LawAndTax-News.com, Washington

14 August 2008

The Securities and Exchange Commission (SEC) announced on Thursday that it has published for public comment an agreement among the securities self-regulatory organizations (SROs) that is designed to improve detection of insider trading across the equities markets by centralizing surveillance, investigation, and enforcement under NYSE Regulation, Inc. (NYSE Regulation) and the Financial Industry Regulatory Authority, Inc. (FINRA).

Currently, each equity exchange is responsible for surveillance of trading on its market and any investigations and enforcement actions involving its members.

This proposed new approach by the SROs to detect and enforce prohibitions against insider trading arose from yearlong discussions among the SEC, NYSE Regulation, FINRA and the exchanges to improve market integrity and better protect investors.

The proposed plan would focus expertise and eliminate gaps and duplication in surveillance for insider trading among the equities markets.

SEC Chairman Christopher Cox announced:

"We have immediately published this proposal for public comment because of its potential to increase the likelihood that those who engage in insider trading will be caught and punished. This should send a strong warning to those who would undermine market integrity and undercut investor confidence for their own personal gain."

To complement the regulatory allocation agreement published for comment 13th August, the securities exchanges and FINRA also entered into regulatory services agreements.

Together, these agreements would provide NYSE Regulation with responsibility for surveillance, investigation, and enforcement of insider trading in securities listed on the New York Stock Exchange and NYSE Arca; FINRA would have such responsibility with respect to NASDAQ-listed and Amex-listed securities, and securities listed solely on the Chicago Stock Exchange.

FINRA and the following equity exchanges are parties to these agreements:

• American Stock Exchange LLC
• Boston Stock Exchange, Inc.
• CBOE Stock Exchange, LLC
• Chicago Stock Exchange, Inc.
• International Securities Exchange, LLC
• NASDAQ Stock Market, LLC
• National Stock Exchange, Inc.
• New York Stock Exchange, LLC
• NYSE Arca Inc.
• Philadelphia Stock Exchange, Inc.
• NYSE Regulation, Inc. (acting under authority delegated to it by NYSE)

The insider trading initiative for the equities markets follows a similar consolidation of responsibility for surveillance for insider trading involving securities options, which the SEC approved in June 2006.

Public comments should be received by the Commission no later than 21 days after publication of the proposed plan in the Federal Register.

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