The UK Financial Services Authority (FSA) have just announced the results of a six month investigation into insider trading – the trading of shares in the knowledge of price sensitive information not yet made public. While the results are not surprising, it is the first time that the FSA have been so strong in their direct condemnation of market participants.
After interviewing a vast array of advisers, bidding companies, lawyers and stockbrokers, the FSA came to the conclusion that security was very lacking in some areas, there were signs of deliberate leaking and confirmed the existence of insider trading. The FSA already had figures showing unexplained price movements prior to corporate activity in 25% of takeovers in the UK in 2005 – an astounding figure which translates into profits in the billion of pounds for insider traders.
While historically insider trading has been one of the hardest crimes to prove, there is hope that security will now be improved, which should in theory reduce the flow of price sensitive information to unconnected parties. However, the facts are that there are many opportunities for information to be leaked directly or indirectly, in areas such as advisers, printers and lawyers to name but a few.
Any improvement because of this FSA investigation will be much welcomed by the industry, and will perhaps make some of the insider traders reconsider their approach to trading on price sensitive information. We await the next big court case, which may well turn out to be a watershed in the quest to reduce this ancient practice.