US pact centralizes policing of insider trading


Ten US exchanges have agreed to give two market watchdogs more power to ferret out insider trading regardless of where it occurs in the United States, regulators said.

The exchanges will give responsibility for detecting illegal trading to NYSE Regulation and the broker-dealer watchdog, the Financial Industry Regulatory Authority (FINRA), which are currently responsible for the New York Stock Exchange and Nasdaq.

Each exchange currently is responsible for monitoring trading on its market as well as any investigations and enforcement actions.

The move is designed to improve the surveillance, investigation and enforcement of fraudulent trading in equities securities.

“It improves coordination, centralizes responsibility for surveillance and it helps us look at things in a more broad, coordinated way,” said John Malitzis, head of NYSE Regulation's market surveillance division.

Thomas Gira, FINRA's executive vice president for market regulation, said it is hard for the individual exchanges to put things in context when the exchange is only looking at its own market.

“The point of (the agreement) is putting it all together and have experienced staff looking at trading across the whole market,” Gira said. “We are increasingly seeing more hedge funds and more cross border trading, so it raises the complexity of the investigations.”

Gira said FINRA has seen an uptick in insider trading and has made 108 referrals this year to the Securities and Exchange Commission.

The exchanges included in the agreement, besides NYSE Euronext's NYSE and NASDAQ OMX Group Inc's Nasdaq, are: the American Stock Exchange, Boston Stock Exchange, CBOE Stock Exchange, Chicago Stock Exchange, Deutsche Boerse's International Securities Exchange, National Stock Exchange, NYSE Arca and the Philadelphia Stock Exchange.

The proposal has been submitted to the US Securities and Exchange Commission, which must approve the change. The agency is soliciting public comment. Both FINRA and NYSE Regulation are hopeful the SEC will approve the rule by the end of September. (Reuters)

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