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Business Crimes BulletinFeaturesRegulationWhite Collar Crime

Government Looking Into Insider Trading By Tipping Block Trades

By Michael Miller and Daniel Podair
June 01, 2022

As Congress struggles to determine whether it will finally pass a law defining insider trading, the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) have trained their sights on an ever-widening array of insider trading practices and theories. Recent cases have focused on the purchase and sale of material non-public information on the dark web and the use of a variation of traditional insider trading called "shadow trading." The government is now investigating whether financial institutions have engaged in insider trading by tipping some of their clients about large, market-moving "block trades" in securities that the financial institutions are scheduled to handle for other clients. This article discusses how the government might frame insider trading cases based on allegations of tipping before the execution of block trades in securities.

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Block Trading Explained

A block trade in securities is a transaction involving either more than 10,000 shares or shares worth at least $200,000. See, 17 CFR §242.600(b)(12); NYSE Information Memorandum Number 14-06 (Feb. 25, 2014). Because block trades are large, these trades may be "market moving." To minimize the market impact, a shareholder trading a large block of stock will often conceal its role in the block trade by running it through a financial institution. Block trading is big business for the financial institutions who handle these transactions. According to data from Dealogic, in 2021, broker-dealers executed more than $70 billion of block trades in the United States. See, Gillian Tan, Katherine Burton, Sridhar Natarajan, "What Block Trades Are and Why the SEC's Investigating," Bloomberg (Feb. 16, 2022).

Historically, block trading of securities has been regulated by individual stock exchanges, and not by the DOJ or the SEC. The New York Stock Exchange, for example, has warned its members against trading on information about impending block trades or sharing that information with other market participants. NYSE Information Memorandum Number 95-28 (July 10, 1995).

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