Topic Insider monitoring Insider surveillance
Using inside information is prohibited and deemed a criminal offence. In order to detect insider trading, BaFin analyses data on all securities transactions that banks, for instance, have to report. It also analyses ad hoc notifications and follows up on information from third parties.
Insiders are persons who have knowledge of facts relating to listed companies that are not in the public domain and that could potentially have a significant impact on the share price of these companies, for instance because these persons have come into possession of this inside information in a professional capacity. Examples of inside information include being aware of the fact that a listed company is about to undertake a corporate action that will increase (or decrease) its capital or to acquire a substantial holding in another company.
Anyone who acts on their inside knowledge and buys or sells securities or amends or cancels an order which was placed previously, for their own benefit or that of anyone else, renders themselves liable to prosecution, irrespective of how they obtained the inside information. It is also prohibited to disclose inside information unlawfully to a third party or to induce or recommend that they buy or sell a security on the basis of inside information.
Monitoring compliance with the prohibition of insider trading
BaFin routinely analyses trading activities for the purposes of monitoring compliance with the prohibition of insider trading. To this end, it analyses data on all securities transactions which credit and financial services institutions have to report. In addition, BaFin monitors all ad hoc notifications of listed companies and looks into information from third parties. Such third parties may be investors and market participants but also other authorities or the press. BaFin then compares and contrasts price and turnover movements with the information available on a security. In the event of any evidence 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 is confirmed, BaFin reports an 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. If the insider trading, the inducement, the recommendation or the unlawful disclosure is committed negligently, BaFin has the right to take action 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 disclosure and the reporting of managers’ transactions; information that is already in the public domain can no longer be used for insider trading.