A brokerage firm face severe penalties when an employee is convicted of insider trading and the firm is held responsible for the failure to supervise. Negligence is easier to prove when firms don’t implement written policies and information barriers. We discuss the different ways of blocking information, the methods of preventing trading issues at the registered representative level, identifying potential insider trading, and the appropriate steps to take when insider trading is suspected.
Historically, the regulators didn’t distinguish between institutional and retail investors in its communications rules. Recent rule changes loosen the regulatory requirements for institutional sales materials, placing more responsibility on the firms themselves for policing communications with their institutional investors.