How is illegal insider trading detected?
Most illegal insider trading cases are detected through market surveillance systems. Regulators use sophisticated computer programs to find changes in volume and price that are outside “normal” patterns. Trading in stock markets is monitored, as is trading in derivatives markets, where options and futures contracts are traded. Some people try to hide their trades by keeping them small, or by using “nominee” accounts held in another name (either in Canada or offshore). Of 289 insider trading cases opened in Canada in 2001 and 2002, 15 used offshore accounts. In a 2003 task force report on insider trading, the Canadian Securities Administrators said only a few insider trading investigations began because of a complaint or tip. It noted that in the United States, public and industry tips are a major source of potential cases, perhaps because insider trading has a higher profile in the U.S.
