SEC Plans Anti-Insider Trading Alliance FINRA and NYSE are working on…

SEC Plans Anti-Insider Trading Alliance
FINRA and NYSE are working on a centralized policing effort to thwart insider trading at all
exchanges.
By Peter Clime

The SEC has created a provisional plan to increase the efficiency of insider trading investigations
involving centralized watchdog headed up by FINRA and the NYSE regulatory branches. The
plan will put surveillance, investigation and enforcement of insider trading under a single
authority.

Currently, each stock exchange is a self-regulatory organization, responsible for ferreting out and
enforcing the trading in its own market, as required under the Securities Exchange Act of 1934.
The SEC has said that the new plan will be a much more effective alternative, as it streamlines
intelligence gathering and the sharing of information among the exchanges.

Under the deal, the American Stock Exchange, the Boston Stock Exchange, the CBOE Stock
Exchange, the Chicago Stock Exchange, the International Securities Exchange, the NASDAQ
Stock Market, the National Stock Exchange, NYSE Arca, the Philadelphia Stock Exchange will
cede power to the central authority.

While the agreement has been filed with the SEC for approval, the organizations is soliciting
public comment on the plan over the next few weeks. The agreement brings insider trading
prevention efforts to a new level by consolidating the efforts of individual markets, said Stephen
Luparello, senior executive vice president at FINRA.

"As a result," Luparello said, "potential insider traders, whether acting alone or in concert with
others, and regardless of where they trade in the U.S., will be more readily identified in this new,
more unified structure."

The SEC will remain in charge of enforcing federal securities laws, but the system of making
referrals to the Commission for federal prosecutions will be overhauled. The move comes amid
questions as to the full extent of illegal trading activity.

"I believe we're going to see more insider trading cases," said Linda Chatman Thomsen,
enforcement director of the SEC. "I am disappointed in the number of cases we are seeing by
people who make an abundant livelihood in the market that they are sort of abusing by insider
trading,"

According to NYSE Regulation data, the exchange referred 141 suspected cases of insider
trading to the SEC in 2007, a major increase from the 100 it referred in 2002. An increasing
number of violations and suspected insider-trading charges involve hedge funds. In the first six
months of 2008, over half of the NYSE's 90 referrals to the SEC involved hedge funds.

"A focused, consolidated review strengthens our ability to prevent anyone from profiting from
insider information," said Richard Ketchum, chief executive of NYSE Regulation. "[The plan]
will allow NYSE Regulation and FINRA to implement across markets their state-of-the-art
insider-trading surveillance and investigation programs for all listed securities in the U.S.," he
said.

SEC chairman, Christopher Cox said that the plan has the "potential to increase the likelihood
that those who engage in insider trading will be caught and punished."

The agreement is somewhat of a sign of the times for some.

"I think we all recognize that in a world of electronic trading, where there are more venues and
more opportunities where people may be able to hide their activity, consolidating the review of
insider-trading activity was critical," added Ketchum.