Insider trading: detection, prevention, and compliance framework

Insider trading is a complex and heavily regulated practice that has been the subject of much academic research and legal debate. 

News outlets frequently report on insider trading cases and their severe consequences for the implicated individuals and businesses.  

It's a behaviour that prevents full and proper market transparency, which is a prerequisite for trading among all economic actors in integrated financial markets.  

Insider trading is a severe crime that can harm both the companies whose confidential information is leaked and the integrity and efficiency of financial markets where listed companies' shares are traded. 

But what exactly constitutes insider trading, and what can companies do to minimise the risks? 

In this article, we explain insider trading, its legal implications, and best practices for companies to protect their business.   

Why insider trading remains a top enforcement priority in 2025 

Despite decades of regulation, insider trading continues to be one of the most prosecuted forms of market abuse. 

Enforcement agencies from the SEC (Securities and Exchange Commission) and CFTC (Commodity Futures Trading Commission) in the US to ESMA (European Securities and Markets Authority) and national regulators in the EU make it clear: no firm is too small and no transaction too minor for scrutiny. 

Understanding insider trading 

Insider trading occurs when someone with material, non-public information (MNPI) uses it to trade, or tips someone else who does.

Under MAR in the EU, MiFID II surveillance requirements, and SEC/FINRA rules in the US, companies must monitor this behaviour across all asset classes and venues.

Insider trading is also committed when a person uses inside information to change or cancel an order for a financial instrument that was placed before they obtained the information. 

A closely related crime is unlawful disclosure of inside information, which means leaking inside information to a third party, with or without a recommendation to act on the information.     

What is considered inside information?   

Inside information is information that hasn't been made public, relating to one or more financial instruments, such as:

• stocks
• bonds
• derivatives
• or other related instruments that are admitted for trading on a trading venue

If the information were to be made public, it would likely significantly affect the financial instruments’ prices.  

Some examples of inside information include:   

• A public bid for a company's shares at a price significantly higher than its current market value. 
• A large breakthrough order for the company, or the receipt of an order for a new product with great potential. 
• A financial result that deviates significantly from the expectations in the market, whether positive or negative.  

The challenge of detection 

Insider trading detection is inherently difficult because the activity can appear identical to legitimate trading, unless you link market movements to communication patterns and access to MNPI.  

Many cases require consolidating structured market data with unstructured communications. Some common red flags include: 

• Large trades shortly before significant price-sensitive announcements.
• Use of personal or unmonitored communication channels before trades.
• Trading patterns that deviate from historical behaviour without a clear justification.
• Related-party accounts showing correlated trading activity.
• Cross-asset trades that benefit from the same event.

How to prevent insider trading at your company and best practices 

While it can be difficult for a company to protect itself from an employee who suddenly goes rogue, there are some measures you can take to prevent illegal disclosure of inside information and insider trading at your company.   

These measures include:  

• Access controls: Limit the number of employees with access to inside information and ensure they know their legal obligations and responsibilities.  
• Integrated surveillance: Implement physical and digital security measures to prevent unauthorised access or illegal disclosure of inside information. 
• Training and awareness: Educate employees about the risks and consequences of insider trading and provide them with guidance and support if they have any questions or concerns. 
• Reviewing: Continuously review your arrangements, systems, procedures, and routines according to requirements from supervisory authorities. 
• Security: Routinely use smart logs that cover all actions by individuals in relation to the handling of insider information. Analyse digital footprints and prohibit risky behaviours among all employees. 
• Digital surveillance: Take necessary safety precautions with digital devices provided to employees in the office.  
• Learning: Observe and learn from other organisations with in-depth experience with high-level security measures, such as military intelligence operations or the Swedish Security Service. 
• Hiring: Do in-depth due diligence, preferably by external expertise, before hiring staff who handle inside information as part of their daily work duties. The weakest link is always the people you hire who have access to inside information.