In this article
It can be quite affirming to be trusted with information that’s not (or not yet) widely available, and most of us are likely quite confident in our ability to deal with it responsibly — so much so that we might not give it a second thought.
But in that realm of confidence and (relative) ignorance, insider trading is allowed to flourish.
Just think about it. How are you supposed to accomplish the goal of robust insider trading prevention if you don’t know:
- Who qualifies as an insider?
- What specifically can’t be traded?
- What’s at stake for even the tiniest, most well-meaning slip-up?
Luckily, those are questions that we at Ethena are quite literally trained to answer, so let’s start at the beginning: what is insider trading, anyway?
What is insider trading?
To fully comprehend what insider trading is, we first need to introduce another definition: that of material nonpublic information, or MNPI. The acronym refers to details that an individual has access to but that aren’t yet available more broadly (thus, the nonpublic part).
MNPI includes traded financial assets, such as:
- Other financial assets
Now, the definition for insider trading is when someone buys or sells a company’s securities while in possession of MNPI. In short: it’s taking action when you know too much for that action to be a fair one — the opposite of leveling the playing field.
Why insider trading is bad
As you’re hopefully already aware, insider trading is both illegal and a crime. In the United States, enforcement is handled by the U.S. Securities and Exchange Commission (SEC), and violations can come with a maximum fine of $5 million and up to 20 years of imprisonment.
All of which is to say that an understanding of what insider trading is and how to avoid it are crucial to a company’s long term success. So let’s dive in and discuss why so many companies have determined that Ethena’s insider trading course is the right choice for their unique workforces.
3 reasons why companies should care about avoiding insider trading
If you’re wondering why your company should prioritize insider trading prevention, the range of answers is broad, encompassing ethical, legal, and financial incentives.
1. To start with, it’s the right thing to do
The market is literally designed to be free and honest, and it can’t accomplish that goal if one group of people has a leg up on everybody else. When employees take advantage of insider information they’ve gleaned at work for personal gain, it comes at the detriment of:
- Their employer
- The average investor
- And the market more broadly
Long story short — it’s simply not right.
2. It’s the law
Because of all the reasons cited above (not to mention many more), we’ll remind you that insider trading is illegal. Full stop. So educating your team on how to identify MNPI helps ensure they’re informed, up-to-date, and on the right side of the law. Hello mitigated risk!
3. There are serious consequences in play
Finally, because of the legal implications, insider trading violations can be exceedingly costly — in more ways than one. Just ask these three tech executives who were charged in July 2022 for insider trading violations for:
- Securities fraud
- Wire fraud
- And conspiracy to obstruct justice
Not only are fines and criminal penalties in effect, but you also have to factor in the incalculable reputational loss that comes in the wake of these issues.
Why you need insider trading training at your company
Now that we’re on the same page about why it’s important to prevent insider trading, let’s talk about why you need it at your company specifically.
The onus is on you
There are very few criminal scenarios these days where ignorance is deemed an acceptable excuse, and insider trading is decidedly not one of them. That’s why preparing your employees (and proving that you did) is imperative. Insider trading rules for employees are extensive:
- They’re responsible for not engaging in insider trading (of course)
- They’re also expected to comply with their company’s trading requirements and restrictions
- They’re charged with safeguarding any and all confidential information that comes their way
That’s their responsibility, so it’s your responsibility to equip them with the tools they need to accomplish it. After all, you can’t avoid what you don’t understand.
The definitions involved are broader than you think
These regulations aren’t just for public companies or corporations in the financial services industry, by the way. “Insider” isn’t a synonym for “employee”; the term can also apply to:
- An agent
- A service provider
- Anyone with confidentiality obligations
- And people with no direct responsibilities to the company who receive a tip from an insider — personal connections like family, friends, or even acquaintances
Furthermore, it’s important to note that securities laws apply to all securities, not just publicly-traded ones. So don’t think you’re off the hook just because your company hasn’t gone public.
The stakes are simply too high
As we’ve emphasized repeatedly in this post, the consequences of finding yourself on the wrong side of an insider trading violation are significant. We’re talking about the potential for civil and criminal prosecution, for both the individual and — in some cases — their employer, as well. (And just in case you need a reminder on the consequences from earlier in this article: up to 20 years in prison, and up to $5 million in fines. Per violation.)
What makes Ethena’s insider trading course stand out?
We’ve talked a lot today about the illegality of trading some insider information, but there are still some tips it’s okay to share. Namely, that our insider trading training stands out even in a crowded field — and as insiders ourselves, we’d highly recommend you try it at your workplace.
We go beyond check-the-box training
So much relies on employees understanding what’s asked of them in terms of insider trading avoidance, so we’re often surprised at how:
- And inaccessible traditional training content can be
We create content for modern teams. This means it has:
- Clear, easy-to-understand explainers
- Relevant scenarios that are in line with your org’s DEI initiatives and modern-day situations
- Intermittent checks on learning that gauge comprehension (and gently guide the learner to the appropriate answer whenever they miss the mark)
- A snapshot of the learner’s completion stats so they’re on hand if that information is ever requested by a regulatory authority
Our integrations and admin time-savers are best-in-class
If you’re currently responsible for the training program at your workplace, you already know what a time-suck that venture can become. We get it. It typically involves:
- Chasing people down
- Onboarding new folks
- Drafting endless reminder emails
- Manually checking off compliance requirements and completions
But with Ethena, our integrations with HRIS systems, Slack, and email mean that most tasks become as simple as pressing a button. On average, our clients save an average of 145/hours a year with Ethena, thanks to our automated reminders, seamless integrations, and other special touches designed to save you time.
Our approach works
Sure, we’re biased, but these statistics speak for themselves. Our training has garnered not just rave reviews from administrators, but over 1 million positive reviews from learners (that’s our term for your employees).
That’s particularly huge because user engagement has been linked to comprehension and retention, so a happy learner is an informed learner — which is a huge boon to company security and overall health.
Before we leave you
If you take nothing else away from our time together, remember to be vigilant. If you’re in possession — or think you might be in possession — of a company’s MNPI, don’t be a part of any transactions involving that company’s securities.
We hope you’ll join customers like Robinhood and Carta in partnering with us on that journey, but if you aren’t quite sold yet, this doesn’t have to be the end of the conversation. Scroll down on this page to request a sample training today, which is a great way to see our work in action, or if there’s more information you’re looking for — let’s talk!