Employee personal trade monitoring software refers to digital tools that allow organisations to streamline the monitoring of employee personal securities transactions. It is typically utilised by companies that are under an obligation to maintain compliance with strict regulatory oversight, such as in the financial sector. This software allows them to stop and deter trades that are illegal, as well as those that could cause a conflict of interest with clients or otherwise compromise the organisation’s reputation.
The software alerts compliance teams to potentially problematic trades made by employees that contravene the company’s trading policy.
Features of employee trade monitoring software
Pre-clearance process
The software should allow companies to set parameters for what it deems to be acceptable trades within a pre-clearance procedure. Employees must use this process when they want to make trades on their personal accounts, with only acceptable trades listed within the software. If there is no option to gain clearance on a trade, it means that they should not take part in their intended transaction.
Central reporting
The software is a central repository, containing details of all of an employee’s trades. By obliging staff to seek approval for their personal trades through the software, it makes it easier to keep track of their portfolio and monitor for potential contraventions.
Transaction tracking
Employees report their trades within the software, including stocks, bonds, options and other financial instruments. This allows the organisation to understand the employee’s holdings, taking action if a previously acceptable transaction contravenes the company’s trading policy due to circumstances within the business. For example, the organisation onboards a competitor of a company in which the employee is invested, thus leading to a potential conflict of interest.
Compliance alerts
The software generates alerts and notifications based on your predefined rules, such as excessive trading volume, potential conflicts of interest or trading in restricted securities. For example, when configured in this manner, it can notify the compliance team when there is an attempted trade by a senior executive during a closed period.
Benefits of employee trade monitoring software
Regulatory compliance
With regulations such as the Market Abuse Regulation (MAR) and Markets in Financial Instruments Directive (MiFID II), companies are under an obligation to reduce the opportunities for staff to carry out market abuse and market manipulation.
Monitoring employee trades can prevent activities such as front-running and insider dealing, which could have significant consequences both financially and reputationally.
Risk mitigation
Conduct risk is a major consideration for organisations, with the potential negative consequences of failing to adhere to the various pieces of legislation. By integrating employee trade monitoring software into your workflows, you reduce the chances of legal, financial and reputational damage.
Automatic alerts
Automation streamlines a company’s monitoring process, reducing the manual effort required to review employee trades. Compliance teams are stretched as more legislation continues to enter into law, so using a solution that sends an automated alert when there is a contravention of your policies helps to take the pressure off your employees whilst maintaining compliance.
Adherence to the law
On employee personal transactions, MiFID II states that “an investment firm shall establish adequate policies and procedures sufficient to ensure compliance of the firm including its managers, employees and tied agents with its obligations under this Directive as well as appropriate rules governing personal transactions by such persons.”
Using employee trade monitoring software, an organisation can ensure that employees adhere to these policies and procedures and prevent them making transactions which could cause a conflict of interest.
Furthermore, MiFID II also demands that “Member states shall require investment firms to take all appropriate steps to identify and to prevent or manage conflicts of interest between themselves, including their managers, employees and tied agents, or any person directly or indirectly linked to them by control and their clients or between one client and another that arise in the course of providing any investment and ancillary services, or combinations thereof, including those caused by the receipt of inducements from third parties or by the investment firms own remuneration and other incentive structures.”
Employee trade monitoring software often comes combined with trade pre-clearance software to make your efforts to prevent market abuse more robust.