CM001 · Capital Markets

Insider Trading

Insider trading is dealing in a financial instrument while in possession of material non-public information (MNPI) — an earnings release, an M&A announcement, a regulatory decision — ahead of the event's public disclosure. The finding is a convergence finding: it lives in how large the trader's position build is relative to their normal activity, how close to the event the position was built, whether there is a documented information-access linkage between the trader and a source with early knowledge, and how much profit is realised once the event's price impact lands.

Article 8 of the EU Market Abuse Regulation (MAR) prohibits both dealing on inside information and recommending or inducing another person to deal on it. Article 10 prohibits its unlawful disclosure. CM001 detects the trading-side signature of both.

Risk indicators

Pre-Event Position Build

• Position build materially larger than the trader's normal average position
• Position sized and directed inconsistently with the trader's stated mandate
• Position concentrated in a single issuer or a small basket around one event

Timing Proximity

• Position build concentrated in the days immediately before the event
• Order timing inconsistent with the trader's normal trading cadence

Information Access Linkage

• Documented contact events with a corporate insider, advisor or corporate-access
• Contact frequency inconsistent with the trader's normal coverage relationships
• Source has known access to the issuer's material non-public information

Profit Realisation

• Realised profit disproportionate to the position's entry value once the event lands
• Profit timing tightly coupled to the event's public disclosure

Investigation actions

1. Resolve the trader, the issuer and the information source.
2. Compute the pre-event position build ratio (position increase / normal average position).
3. Compute the timing proximity to the event (days before the event the position was built).
4. Count the documented contact events with the information source in the 90 days before the event.
5. Compute the profit realisation ratio (realised P&L / position value at entry).
6. Score each of the four components against its band cut-lines.
7. Aggregate the weighted exposure score; escalate at or above the threshold.

Related typologies

Curated from fc-07-capital-markets-analytics-toolkit/typologies/CM001_Insider_Trading.md