Your Trading the Way Securities Regulators See It

Trading around mergers, earnings, regulatory decisions and other corporate events draws close regulatory scrutiny. Enforcement staff reconstruct how information about an event moved and set that timeline against the timeline of trades. We test that alignment before regulators do: how information about the event reached the firm, who had access to it, when positions were built, and whether public information explains the trading pattern.

The review covers trading in economically linked securities. The SEC pursued that “shadow trading” theory in SEC v. Panuwat, No. 4:21-cv-06322 (N.D. Cal.), and won a jury verdict in April 2024. The case is on appeal to the Ninth Circuit.

Automated strategies can produce order patterns that regulators read as spoofing, layering or manipulation. We review strategy logic, order behavior and controls. We identify the patterns surveillance systems flag, and we help you address them before you trade.

Section 15(g) of the Securities Exchange Act and Section 204A of the Investment Advisers Act require broker-dealers and investment advisers to maintain written policies and procedures that prevent the misuse of material nonpublic information. We test information barriers, watch and restricted lists, and surveillance against those requirements.

FINRA Rule 5310 requires broker-dealers to use reasonable diligence to obtain the most favorable terms for customer orders. We assess order routing, regular execution-quality reviews and the supporting documentation against that rule and FINRA’s guidance.

A Rule 10b5-1 plan provides an affirmative defense only when it meets the rule’s conditions. Those conditions include the cooling-off periods and the good-faith requirement the SEC adopted in 2022. We review plan design, adoption timing, modifications and execution against each condition.

Alternative data can carry material nonpublic information into your models. We examine how a vendor sources, aggregates and scrubs its data. We test the vendor’s representations and contract terms. We document the diligence record a regulator will ask to see.

Regulators increasingly use data analytics to detect trading abuses, and artificial intelligence will widen that reach. We advise firms deploying AI surveillance tools, and the vendors that build them, on how enforcement staff use surveillance output to identify and develop cases.

Written policies and procedures form the first record a regulator reviews. We assess trading-related policies and procedures for fit with the firm’s actual business and with the regulatory requirements that govern it, and we identify the gaps an examination would find.

Electronic blue sheet requests from the SEC and FINRA often mark the start of an investigation. Exchange Act Rule 17a-25 requires broker-dealers to submit transaction data electronically on request. We review the accuracy and completeness of blue sheet submissions, the controls that produce them, and what the requested trading data will show the staff who asked for it.

Trade errors and their correction leave a record that regulators review closely, including error account activity, the allocation of gains and losses, and corrections that move value between accounts. We review trade error policies, error account activity and the handling of individual errors, so that each correction is documented, consistent and supportable.

Market disruptions, trading halts, system failures and extreme volatility force trading decisions under pressure and with incomplete information. Retainer clients have access to TRADEcognition™ for judgment on trading in those conditions, and for review of contingency and business continuity plans before they are needed. Emergency services require 24 hours’ notice; availability is limited.

We conduct an examination modeled on SEC and FINRA practice, with document requests, interviews and testing. You receive our findings before a regulator arrives.