The SEC's enforcement of procedures to prevent insider trading

摘要

Purpose – The purpose of this article is to analyze the SEC enforcement staff's recent scrutiny of the roles and responsibilities of securities firms for the protection of confidential information. Design/methodology/approach – The article reviews the SEC's implementation and enforcement of section 15(f) of the Exchange Act and section 204A of the Advisers Act. Part I discusses the legislative history of these provisions and reviews SEC and staff pronouncements relating to procedures for the protection of material nonpublic information. Part II discusses the potential consequences, from an enforcement perspective, of a firm's failure to satisfy the requirements of section 15(f) or section 204A. Part III describes the SEC's enforcement program in this area and distills guidance for securities firms from the SEC's actions. Findings – Sections 15(f) and 204A require brokers, dealers, and investment advisers to “establish, maintain, and enforce written policies and procedures reasonably designed, taking into consideration the nature of such (broker, dealer, or investment adviser's) business, to prevent the misuse” of material nonpublic information. Thus, the statutory terms frame the issues in any SEC investigation. Does the firm maintain written procedures? Are the written procedures reasonably designed to safeguard material nonpublic information? In particular, are the procedures designed with a view toward the specific structure and business activities of the firm? Has the firm taken reasonable steps to enforce its written procedures? Practical implications – Given the SEC's current enforcement emphasis in this area, it is essential that brokers, dealers, and investment advisers look critically at whether they are taking adequate steps to protect the confidential information they may handle on a daily basis. Originality/value – The paper presents a practical guide by an experienced enforcement attorney.