Insider surveillance
Exploiting inside information is prohibited, and anyone who does so renders themselves liable to prosecution. In order to detect breaches of this rule, Securities Supervision analyses data on all securities transactions that banks, for instance, have to report; it also analyses ad hoc notifications and follows up information from third party sources.
Who are "insiders"? Insiders are people who know highly price-sensitive facts about listed companies that are not in the public domain – perhaps because they have come into possession of this inside information in a professional capacity. Examples of inside information include being aware of the fact that a company is about to undertake an operation that will increase (or decrease) its capital or to acquire a significant participating interest in another company.
Exploiting this inside information is prohibited. Anyone who uses their insider knowledge and buys or sells securities for their own benefit or that of anyone else renders themselves liable to prosecution, irrespective of how they acquired the inside information. Informing someone else of inside information without authorisation or inducing them to buy or sell a security on the basis of inside information is also prohibited.
For the purposes of monitoring the prohibition of insider trading, Securities Supervision staff routinely analyse trading activity. To this end, they analyse data on all securities transactions which credit and financial services institutions have to report. In addition, BaFin also analyses all ad hoc notifications and looks into information from third party sources. These may be investors but also other authorities or the press. BaFin compares and contrasts price and turnover movements with the information available on a security. In the event of any suggestions of insider trading, it launches a formal insider investigation. In so doing, it establishes who the initiator of the suspicious transactions was. If a suspicion hardens, BaFin reports a (possible) offence to the relevant Public Prosecutor's Office. Insider trading is punishable by a term of imprisonment of up to five years or a fine. In the case of secondary insiders – i.e. persons who, unlike executive or non-executive directors (i.e. members of the management or supervisory board) – have no particular connection to the company but who have nonetheless come into possession of inside information, BaFin may prosecute any unauthorised transmission of inside information or any recommendation to buy or sell itself as an administrative (as opposed to criminal) offence.
In order to prevent insider trading before it can happen, there are statutory publication requirements, such as ad hoc disclosures and the reporting of directors' dealings; for information that is already in the public domain can no longer be used for insider trading.
