The Se­cu­ri­ties and Ex­change Com­mis­sion mar­ket-abuse unit is us­ing new ap­proach­es in an ef­fort to bet­ter iden­ti­fy in­sid­er trad­ing and abu­sive con­duct by mar­ket pro­fes­sion­als.Unit Chief Daniel Hawke said the SEC is us­ing a trad­er-based ap­proach to look for pat­terns across groups of peo­ple, such as re­lat­ed trades across dif­fer­ent prod­ucts and mar­kets by a sin­gle trad­er or con­nect­ed group of traders. The new ap­proach has giv­en the SEC a greater abil­i­ty to de­tect re­la­tion­ships among traders, and bring cas­es against large trad­ing net­works.

Daniel Hawke, who is the na­tion­al unit chief of the mar­ket abuse unit in the SEC Di­vi­sion of En­force­ment, and di­rec­tor of its Philadel­phia re­gion­al of­fice, was speak­ing to a gath­er­ing of in­dus­try prac­ti­tion­ers ear­li­er this month at the SIF­MA Com­pli­ance and Le­gal So­ci­ety in New York.The mar­ket abuse unit is struc­tured to deal with a trend to­ward more-or­gan­ised in­sid­er trad­ing, Hawke said.

His­tor­i­cal­ly, cas­es have been one-off or lim­it­ed in scope, in terms of num­bers of se­cu­ri­ties or traders in­volved. He char­ac­terised in­sid­er trad­ing as "very trib­al" in na­ture, in­volv­ing on­ly a close-knit cir­cle of friends and fam­i­ly mem­bers with a high de­gree of trust among one an­oth­er.How­ev­er, in the last few years, an in­creas­ing num­ber of mar­ket pro­fes­sion­als have been in­volved in tip­ping and trad­ing on ma­te­r­i­al non-pub­lic in­for­ma­tion. The es­tab­lish­ment of the mar­ket-abuse unit in 2010 was in re­sponse to this in­sti­tu­tion­al­i­sa­tion or pro­fes­sion­al­i­sa­tion of in­sid­er trad­ing among mar­ket pro­fes­sion­als.

In ad­di­tion to tak­ing an is­suer-based ap­proach, where mon­i­tor­ing would be fo­cused on a sin­gle stock, the mar­ket abuse unit is look­ing at traders and ask­ing what se­cu­ri­ties are com­mon to them.The SEC is de­vel­op­ing stronger risk-as­sess­ment ca­pa­bil­i­ties in its en­force­ment and ex­ams, giv­en that it lacked a ro­bust sys­tem to iden­ti­fy risk, or to de­ploy re­sources based on risks and emerg­ing trends.En­force­ment di­rec­tor Robert Khuza­mi and OCIE head Car­lo Di­Flo­rio were ful­ly en­gaged in bring­ing re­gion­al lead­ers to­geth­er in a way that im­proved per­for­mance man­age­ment and ac­count­abil­i­ty at all lev­els, Hawke said. The re­gion­al di­rec­tors are now bet­ter in­te­grat­ed with the SEC na­tion­al lead­er­ship, and reg­u­lar­ly talk with one an­oth­er on na­tion­al pro­gramme is­sues.

Each re­gion­al of­fice is now able to see tips, com­plaints and re­fer­rals com­ing in­to oth­er re­gion­al of­fices. This is part of the larg­er SEC sys­tem to track in­com­ing tips, and which goes to­ward hav­ing bet­ter in­tel­li­gence-gath­er­ing and risk man­age­ment.In the di­vi­sion of en­force­ment, man­age­ment stream­lin­ing al­so elim­i­nat­ed a tier of man­age­ment at the branch chief lev­el, which has re­sult­ed in a ra­tio of six staff to one man­ag­er, rough­ly dou­ble that of the past.