Authorities need to rethink insider trading detection
Insider traders avoid detection by steering clear of less liquid markets and mimicking the patterns of other traders, new research has revealed.
The findings suggest authorities may need to completely rethink the way they track illegal traders, the study, from the Capital Markets Cooperative Research Centre said.
Professor Alex Frino of Macquarie Graduate School of Management said relying on abnormal price and volume movements may be an ineffective approach.
"The profile of an illegal trade depends on the normal market behaviour at the time, as the insider attempts to ‘hide in the crowd'," said Professor Frino.
Frino and fellow researchers found the size of an insider's trade is often determined by the trader's attempt to avoid detection — and they tend to trade less in illiquid markets.
The research was based on court and litigation reports from the Australian Securities and Exchange Commission over a 10-year period.
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