SEC Review Finds Gaps on Insider Trading at U.S. Broker-Dealers

Traders at broker-dealers often interact with bankers who know confidential information, raising concerns about undetected insider trading, the U.S. Securities and Exchange Commission said.

Senior executives at some broker-dealers are allowed access to non-public information from one group while overseeing employees who could benefit from it, the SEC’s Office of Compliance Inspections and Examinations said today in a report. Allowing some supervisors to be “above the wall” dividing traders from those with the information may facilitate insider trading, according to the report, which didn’t name any firms where such practices exist.

The SEC’s review of secrecy procedures at broker-dealers follows a nationwide crackdown on insider trading by the Federal Bureau of Investigation in New York and prosecutors in the office of Manhattan U.S. Attorney Preet Bharara that began five years ago. The probe snared Raj Rajaratnam, 55, the co-founder of Galleon Group LLC, who was convicted last year on securities fraud and conspiracy charges.

“The report illustrates the types of conflicts of interest that may arise between a broker-dealer’s obligations to clients that provide confidential information for business purposes and the potential misuse of such information for insider trading or other improper ends,” Carlo di Florio, the director of the SEC office, said in a statement.

To contact the reporter on this story: Zeke Faux in New York at

To contact the editors responsible for this story: David Scheer at

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