Welcome to the digital underworld, where the age-old art of insider trading has taken on a tech-savvy twist. The rise of digital communication platforms has brought unprecedented convenience and speed to the way information is shared. However, with these advancements come new challenges and risks, particularly in the context of insider trading. One such challenge is the prevalence of insider trading, where individuals exploit non-public information for personal gain. In particular, the digital age increases the risks of passing information and getting rwarded back for it easier.
“No insider shall communicate, provide, or allow access to any unpublished price sensitive information, relating to a company or securities listed or proposed to be listed, to any person including other insiders except where such communication is in furtherance of legitimate purposes, performance of duties or discharge of legal obligations” (SEBI)
Insider Trading – Old Wine New Bottle
Insider trading, traditionally associated with the exchange of confidential information within closed circles, has evolved with the digital age. In the past, illicit information sharing may have occurred through discreet meetings or whispered conversations. Today, however, the immediacy and reach of digital communication have amplified the potential consequences of insider trading.
Speed and Accessibility Of Insider Information and UPSI:
In the digital age, information travels at almost the speed of light. Instant messaging platforms and real-time communication channels allow insiders to share sensitive information swiftly, increasing the risk of exploitation before regulatory bodies can intervene. The accessibility of these platforms also widens the pool of potential wrongdoers, making it challenging for authorities to monitor and control illicit activities effectively.
Private Messaging Apps as a Catalyst for the Spread of UPSI:
Private messaging apps have become a breeding ground for the dissemination of Unpublished Price Sensitive Information (UPSI) among insiders. These platforms, such as WhatsApp, Signal, Telegram, Confide, Dust etc offer encryption and privacy features that make it difficult for regulators to monitor and track illicit communication. Insider traders can exploit these channels to share confidential information with select individuals, bypassing traditional surveillance measures.
Alt+Channels of Communication:
From leaving email drafts containing information in shared email boxes, to using in-game chats, the means of passing information keep expanding. However, at the same time, there is always a digital footprint. These footprints can be compared with what is logged (or not logged) in applications like the Structured Digital Database to establish culpability.
Cryptocurrency as Compensation:
The rise of cryptocurrencies has added a new layer of complexity to insider trading schemes. Decentralized exchanges and anonymous transactions make it increasingly challenging for authorities to trace and investigate illicit activities. Insider traders can leverage cryptocurrencies as a means of profit-sharing from the UPSI they receive, facilitating anonymous transactions and evading detection.
As regulators navigate the digital age armed with statutory powers of surveillance, regulatory changes like the need to maintain a Structured Digital Database and the upcoming regulations on Unexplained Suspicious Trading Activity (USTA) further provide teeth to the regulators to deal with Insider Trading challenges in the digital age. Comprehensive applications like Affinis become ever-more essential to keep up with the regulatory compliances as the compliance requirements, in turn, evolve to keep up with the digital age.
