Enter to open, tab to navigate, enter to select
SEC Issues Report on Broker-dealer Handling of Confidential Information
Practical Law Legal Update 9-521-6608 (Approx. 3 pages)
SEC Issues Report on Broker-dealer Handling of Confidential Information
by PLC Corporate & Securities
| Published on 02 Oct 2012 • USA (National/Federal) |
The SEC issued a report intended to help broker-dealers safeguard confidential information from misuse, such as insider trading.
On September 27, 2012, the SEC issued a report by the Office of Compliance Inspections and Examinations describing the strengths and weaknesses in how broker-dealers keep material nonpublic information from being misused. The report may be useful in a review of conflict of interest risk management programs.
The report highlighted some areas of concern, including:
- Significant amounts of informal, undocumented interaction between groups with material nonpublic information and groups with sales and trading responsibilities that may profit from misusing the nonpublic information.
- Some senior executives had access to material nonpublic information from a business unit while overseeing a different unit that could profit from misusing the nonpublic information, with few restrictions or monitoring to prevent the misuse.
- Some broker-dealers lacked risk controls to address certain business units that possess or receive material nonpublic information, such as sales personnel who receive confidential material nonpublic information for business purposes.
The report also highlighted effective practices used by some broker-dealers:
- Differentiating between types of material nonpublic information that allowed for tailored "exception" reports based on the nature of the information or where it originated.
- Expanding reviews for potential misuse of confidential information to include trading in, among other things, credit default swaps and components of pooled securities.
- Monitoring electronic sources of confidential information to identify which employees had accessed the information.
- Monitoring access rights for key cards and computer networks to ensure that only authorized personnel had access to sensitive areas.