This panel at the City & Financial Global Market Abuse Summit delved into the ever-complex and critical issue of inside information.

Moderated by Tepo Din, a seasoned expert from Temple Bright with a background spanning top legal firms, the FCA, and BlackRock, the panel brought together a wealth of industry experience. Emma Parry, an independent adviser specializing in fraud and market manipulation; Fleur Eysenck, a legal counsel at Barclays focused on investigations and market abuse with prior experience at the FCA; and Ollie Barker, a freelance consultant with extensive regional head surveillance experience at major financial institutions, offered their perspectives on the current state of play.

How clean are global markets?

The discussion kicked off with a stark question: how clean are the markets? Parry presented compelling data, referencing the FCA’s own findings from last year indicating suspicious stock market movements preceding 30% of takeover announcements in the UK. However, she highlighted even more illuminating research from the Australian regulator, ASIC. Its study spanning 2009 to 2022 across international equities markets painted a concerning picture.

According to ASIC’s data, Hong Kong topped the list with the highest percentage of abnormal trading preceding M&A activity, followed by South Korea and India. The UK ranked fourth, underscoring that insider dealing is far from a localized issue. Germany and the US came in at sixth, prompting questions about how recent events might skew the US figures. Australia was identified as the “cleanest” within the top 10.

Parry emphasized that these statistics, coupled with ongoing conversations at the Summit, highlight the persistent need for enhanced detection and prosecution of insider trading. She noted that regulators such as the FCA and ASIC are actively investing in data and technology to identify suspicious activity and are monitoring corporate announcements. ASIC has even established a dedicated criminal investigations team focused specifically on insider trading, signaling a proactive approach to tackling the problem.  

Din reinforced this point, emphasizing that market abuse remains a significant focus for regulators across Europe and globally.

Blurring lines of inside information

Barker then provided his insights into the current challenges surrounding inside information. He argued that the rise of social media and the constant influx of information have significantly blurred the lines of what constitutes non-public information.

He used a topical example, referencing statements made on social media by the US President. Donald Trump posted it was “a great time to buy” just hours before pausing tariff impositions. Questions arise as to whether certain pronouncements, potentially influencing market movements, could be considered tipping off information. The ambiguity lies in whether such posts constitute public information accessible to all, or if they could be construed as selectively disseminated insights. This gray area presents a significant challenge for regulators such as the SEC in determining whether to pursue prosecution.

Barker also highlighted the SEC v Panuwat case and the concept of “shadow trading” as a further complication. This involves using confidential information about one company to trade in the securities of a seemingly unrelated but interconnected company within the same industry. The conviction in this case, which took several years, underscores the complexity and time-consuming nature of prosecuting such nuanced forms of insider dealing.

The pervasive use of communication platforms like WhatsApp adds another layer of difficulty. While there have been cases resulting in fines related to information sharing on these platforms, the sheer volume of data exchanged makes monitoring and identifying the transmission of inside information incredibly challenging.

Parry further elaborated on the blurring lines, distinguishing between insider information and misinformation. She noted the long-standing issue of “pump and dump” schemes and “trash and cash” tactics. However, the advent of social media, coupled with sophisticated technologies like AI analyzing social sentiment for trading signals, has created new avenues for market manipulation based on both genuine inside information and deliberately misleading rumors. The speed and reach of these platforms make detection and intervention significantly more complex.

Opportunistic insider dealing cases … often involve individuals outside traditional financial roles gaining access to sensitive information through shared living arrangements or domestic situations.

Din then turned to Eysenck, asking for her perspective from the “coal face” of investigations, particularly in light of the pandemic and the more recent market volatility.

Eysenck highlighted the significant impact of the pandemic, noting a rise in opportunistic insider dealing cases stemming from the shift to remote working. Statistics from late 2024 indicated a high number of open opportunistic insider dealing cases for the FCA, potentially a record. These cases often involve individuals outside traditional financial roles gaining access to sensitive information through shared living arrangements or domestic situations, such as eavesdropping on calls or accessing private computer data. The continuation of hybrid working models means these challenges persist.  

Eysenck also echoed Barker’s concerns about the cultural implications of certain high-profile figures seemingly demonstrating a lax attitude towards information flows. She emphasized the long-established principle of “tone from the top” and suggested that a perceived disregard for information integrity at the highest levels could have serious repercussions on market conduct.

Eysenck also underscored the time-intensive nature of building a robust insider dealing case that meets the “beyond reasonable doubt” threshold required for criminal prosecution. Gathering evidence of what an individual knew, when they knew it, and how they disseminated that information across various communication channels – from emails and messaging apps to social media – presents a significant investigative hurdle. This complexity clashes with the FCA’s stated goal of reducing investigation times.

The panel discussed the potential for increased reliance on Section 166 reports and supervisory enquiries as a way for regulators to gather information, particularly given the challenges of direct investigation.

Educating and equipping market participants

Din then shifted the focus to practical measures, asking what resources are available to educate individuals and firms on navigating the complexities of inside information.

Eysenck highlighted the FCA’s recent guidance for issuers (Primary Market Bulletin 52) as a significant step. While acknowledging that the guidance imposes considerable obligations, she emphasized its helpfulness in clarifying the regulator’s expectations regarding the identification, recording, and control of inside information.

The guidance emphasizes the need for issuers to consider information as potentially inside information much earlier in processes, particularly in situations like receiving an offer. It also stresses the importance of maintaining robust insider lists and ensuring timely and accurate disclosure of inside information, with delays only permissible under specific conditions.

Eysenck specifically pointed to the guidance on CEO resignations and new hires, requiring issuers to conduct separate analyses and have distinct disclosure processes for each, even at early stages of these processes. She believes this guidance should prompt issuers to take a more vigilant approach to managing sensitive information.

Parry concurred, noting that while the legislation surrounding insider dealing can be complex, the FCA’s guidance for all issuers (not just those in financial services) offers valuable clarity on the regulator’s thinking. She highlighted proposals within the guidance, such as the establishment of disclosure committees, the clear empowerment of individuals to make disclosures, and the need for enhanced employee training.

Crucially, the guidance emphasizes the importance of documenting the entire decision-making process to establish a defensible position regarding information handling. Parry also praised the FCA for providing specific examples in the guidance, such as the CEO resignation scenario, as these concrete illustrations help issuers understand the practical application of the regulations.

Barker, while acknowledging that any guidance is helpful, expressed skepticism that it would be sufficient given the broader challenges of defining inside information in the digital age and the entanglement of genuine inside information with shadow trading and misinformation.

Dissemination of inside information

The discussion then turned to the crucial aspect of information dissemination. Eysenck reiterated the FCA’s focus on timely and accurate disclosure through appropriate channels. The guidance specifically addresses controlling communications with shareholders, emphasizing that informal communications should be avoided in favor of proper channels at the appropriate time – a judgment call that can be challenging for issuers.

The FCA’s guidance also provides relatively specific scenarios related to shareholder calls and meetings, particularly highlighting communications with smaller, private shareholder groups. Parry noted that while examples are helpful, these scenarios are quite specific.

Barker suggested that these specific examples might be a response to the challenges posed by social media. He highlighted the potential for rumors to spread rapidly and affect the market, underscoring the need for corporations to control who within shareholder groups is authorized to communicate sensitive information. He cited anecdotal evidence of market-moving rumors originating on less reputable social media channels, emphasizing the urgency for clearer regulatory guidance on managing information flow in the digital age.

Using AI

Moderator Din prompted the panel to offer general top tips for identifying and disseminating inside information. Barker candidly admitted the difficulty in providing definitive answers, particularly with the rapid advancements in AI and communication technologies. He questioned the efficacy of using AI to detect misinformation, highlighting the challenge of defining what constitutes misinformation versus genuine information. He expressed doubt that current AI capabilities could reliably discern the nuances without extensive and accurate training data derived from real-world cases.

Barker also raised the concerning prospect of sophisticated AI being able to circumvent detection mechanisms, potentially engaging in insider trading while masking its activities. He ‘jokingly’ suggested the need for “better” AI to police the “bad” AI, underscoring the inherent difficulties in keeping pace with technological advancements in surveillance and control systems.

Eysenck offered a contrasting perspective on AI’s potential. While agreeing that AI might not be ready for nuanced “level two” surveillance, she believed it held promise for automating “level one” surveillance of binary events. However, she echoed the challenge of training AI effectively without a substantial base of confirmed insider dealing cases.

Parry highlighted the critical and enduring importance of traditional controls, particularly robust insider lists. She emphasized that these records, meticulously documenting who knew what and when, remain crucial for proving insider trading in legal proceedings.

Non-professional traders

The pervasive influence of social media in the dissemination of information, both legitimate and illicit, was raised. Eysenck noted a recent increase in inquiries from the FCA regarding non-professional traders, individuals at home potentially influenced by and struggling to differentiate between genuine information and misinformation circulating online.

Parry shared anecdotal observations of practitioners reporting a surge in FCA inquiries related to non-professional traders, highlighting the challenge of discerning reliable information from the vast sea of online commentary.

The panel agreed that social media platforms are rife with trading tips and recommendations, making it increasingly difficult for individuals to navigate the information landscape responsibly.

Practical challenges

The conversation then addressed practical challenges faced by firms in identifying and escalating potential insider dealing. A question from the audience highlighted the tension between the volume of alerts generated by surveillance systems and the FCA’s expectation for timely escalation. The questioner also pointed out that sophisticated insider traders might utilize less transparent instruments like Delta One products and OTC options, where historical market data is sparse, making detection more difficult.

Barker advised erring on the side of caution and escalating suspicions promptly (STORs – Suspicious Transaction and Order Reports). He noted that the FCA’s threshold for submitting a STOR is relatively low and that delays in escalation could raise concerns during FCA visits. He also pointed out that while senior managers might initially resist escalating alerts against their own traders, insider dealing often involves clients.

Another audience member referenced FCA data showing a significant increase in STORs related to insider trading over the past three years and asked the panel’s views on the reasons behind this trend. Parry suggested a combination of factors, including heightened awareness and improved detection capabilities within regulated institutions.

She also posited that increased market volatility might be creating more opportunities for illicit activity, with bad actors seeking to exploit market movements. The expanding scope of regulatory scrutiny across different asset classes, including debt and private markets, also contributes to the rise in reported suspicions.

Eysenck concurred, suggesting that increased levels of suspicious activity ahead of M&A transactions and the lingering effects of pandemic-era working arrangements might also be contributing factors. She also expressed a hope that the increase in STORs reflects a growing recognition within firms of the importance of reporting even low-level suspicions.

A representative from UBS highlighted the role of enhanced technology, including AI-powered surveillance tools, in improving alert output and contributing to the higher number of STORs.

Social media v official announcements

The final audience question posed a complex scenario involving a potentially market-moving post on social media appearing hours before an official regulatory news service (RNS) announcement containing the same inside information. The question asked at what point surveillance teams should consider the information to be public and whether reliance should be presumed based on the social media post or the official timestamp of the RNS.

Barker admitted that he hadn’t specifically considered this scenario but acknowledged its complexity. He initially suggested that an X post might be the starting point for investigation but cautioned against automatically assuming that the client had seen it. He emphasized the importance of whether the firm’s surveillance actively monitors such social media channels. If it does, and the post is identified, it could form part of the evidence.

Eysenck added that the analysis would likely be highly situation-dependent, highlighting the nuanced legal considerations involved in determining when information becomes effectively public.

Concluding thoughts

As the session drew to a close, the panel discussion underscored the ever-evolving and intricate nature of insider dealing. The rise of sophisticated technology, the pervasive influence of social media, and the constant need for firms to adapt their surveillance and reporting mechanisms present ongoing challenges.

While regulatory guidance provides a framework, the human element of judgment and ethical considerations remains central to identifying bad actors seeking to illicitly profit from inside information.