Expert answers your questions on insider trading surveillance

When trading activity suddenly shifts right before major market news, the questions start. 

Was it luck, timing, or something more? For market surveillance teams, separating coincidence from misconduct is part of their everyday work. 

To shed light on some of the most common questions around insider trading surveillance, we spoke with Per Friberg, Senior Financial Crime Surveillance Officer at Trapets. 

Per brings a unique perspective shaped by years in investment banking, where he worked as a sales trader in European and US equities and derivatives, followed by extensive experience as a criminal investigator of market abuse at the Swedish Economic Crime Authority and the National Anti-Corruption Unit (NOA) within the Swedish Police Authority. 

So, grab your notebook and your coffee, as Per shares his insights on what really matters in insider trading surveillance. 

What is insider trading?  

Insider trading occurs when a person possesses inside information and uses it to acquire or dispose of financial instruments related to that information, either for their own account or on behalf of a third party. 

It also includes cancelling or amending an order based on inside information, as well as recommending or inducing another person to engage in such trading. 

Which insider trading red flags tend to be the most reliable indicators in practice, based on your experience? 

It depends on the nature of the information, but a few signs consistently stand out. Aggressive trading that isn’t sensitive to price changes is a key one. 

Taking larger risks than usual or selling off other instruments to maximise a single investment can also be telling. And, of course, the timely trade remains the strongest indicator. 

In your opinion, what makes an insider trading case particularly difficult to prove? 

Cases that are often most challenging when trading, from my experience, include: 

• is done several months ahead of the publication
• is done in smaller portions
• doesn't have a price effect
• melts in with other legal trades 

Do the signs of insider trading change over time? Are suspects becoming more sophisticated? 

Yes, definitely. Those involved often learn from previous cases and legal outcomes, which makes some of them more sophisticated in their methods.  

For instance, trading through accounts registered in other countries has become a significant challenge, as it can delay or even prevent investigations.  

That said, not every case is advanced. Some attempts at insider trading are still quite obvious and easy to identify. 

But overall, we’re seeing a gradual shift toward more complex behaviour among experienced offenders. 

Do you have any comments on the ongoing insider trading trial against the former NASDAQ surveillance employee and his associates? How do you address situations where those responsible for monitoring the market are themselves under scrutiny? 

It’s a very unusual case. The surveillance team has access to sensitive, non-public information from listed companies, so the question of who monitors the monitors is both relevant and complex. 

The Swedish Financial Supervisory Authority has also addressed this, imposing a fine of 100 million SEK on NASDAQ for shortcomings in this area. 

There’s no simple answer. You can perform careful background checks, limit access to sensitive data, and log all activities, but ultimately, trust plays a key role. 

These positions carry significant responsibility, and in this instance, that trust was broken. Fortunately, cases like this are extremely rare, and hopefully, we won’t see another one. 

How many alerts raised by surveillance systems are eventually dismissed? 

The majority are dismissed, as proving insider trading is extremely challenging. While it’s difficult to put an exact number on it, I’d estimate that more than 90% of alerts are ultimately closed as dismissed. 

Only a small fraction of cases progress to formal reporting, and even fewer reach court.

Many investigations reveal trading that appears suspicious but lacks sufficient evidence to meet the reporting threshold. 

These are what we refer to as “near misses” - cases that raise concerns but don’t provide enough proof for escalation. 

What role do you see AI playing in insider trading surveillance? 

AI has great potential to enhance how trading activity is analysed. In the future, I believe AI tools could identify connections between trading patterns and upcoming news events, helping to detect suspicious activity earlier and generate more accurate alerts. 

That said, human expertise will always remain essential. While AI can manage much of the groundwork, interpreting the results and understanding the broader context still requires experienced analysts. 

The most effective approach will be a combination of technology and human judgment. 

What effect do you think recent prosecutions by the Swedish Economic Crime Authority will have on future insider trading cases? Will we see less insider trading because suspects are deterred, or will they simply become more careful? 

Unfortunately, I don’t believe insider trading will decrease significantly. These behaviours tend to persist over time, even if individuals adapt their methods. 

What we do see, however, is that people become more cautious. Each court case provides valuable lessons for potential offenders. 

They can review what went wrong and adjust their approach accordingly. In connection with takeover offers, for example, information leakage remains relatively high. Despite that, only a small number of cases ever make it to court. 

Stock analyses and research reports published by brokers or the financial press often influence price movements. Would knowing about an upcoming research report count as insider information? 

Potentially, yes. Research reports are typically based on public information, so it might seem unusual for them to qualify as inside information.  

However, if a highly regarded analyst or a well-known brokerage firm is preparing to release a report with a strong buy recommendation or a price target significantly above the current market price, that information can move the market. 

In such cases, it meets the criteria for inside information before publication, especially when the analyst’s reputation carries weight in the market. 

What are your thoughts on a case where you only see one side of the trades? For instance, when a firm can see the buy side before an announcement, but the investor uses another broker for the sale, which you don’t have visibility on? 

The sale, or profit-taking, isn’t necessarily the key factor. It can support the case, but the main focus should be on the suspicious trade itself, which in this example is the purchase ahead of the news. 

Even if the sale never happens, it can still constitute a criminal offence. The priority should always be to analyse the trading activity that took place before the information became public. 

Curious about more insights? Check out our article, where Per answers common market and trade surveillance questions.