Structured Digital Databases (SDD): An Effective Measure Against Insider Trading

Why do companies need SDD?

Insider trading poses a significant risk to the integrity of financial markets. To combat this illegal practice, structured digital databases (SDDs) have emerged as a valuable tool. In this blog post, we will explore the importance of maintaining an SDD for effective insider trading prevention. We will discuss the key responsibilities in maintaining an SDD and provide essential points to remember to ensure its integrity and reliability.

Who should be responsible for maintenance of SDD?

Maintaining an SDD requires a collaborative effort involving various stakeholders. Here are the key parties responsible for its upkeep:

1. Regulatory Bodies: Regulatory authorities play a vital role in overseeing the maintenance of SDDs. They establish guidelines, standards, and compliance requirements to ensure the integrity and security of the database. Regulatory bodies should conduct regular audits and inspections to verify compliance with these standards.
2. Financial Institutions: Financial institutions, such as banks and investment firms, are responsible for inputting accurate and timely data into the SDD. They should have robust internal controls to ensure the quality and integrity of the information shared. These institutions should also educate their employees about the importance of maintaining data integrity and complying with insider trading regulations.
3. IT Departments: IT departments within financial institutions are responsible for the technical aspects of SDD maintenance. They oversee database management, security protocols, and system updates. IT personnel should have a thorough understanding of the SDD infrastructure and ensure data backups and disaster recovery plans are in place to prevent data loss or breaches.

Points To Remember While Maintaining SDD

Maintaining an SDD requires attention to detail and adherence to best practices. Here are some essential points to consider:

1. The responsibility of maintaining the SDD extends beyond already existing listed companies. Intermediaries, fiduciaries, and entities for unlisted companies planning to list securities are also accountable for maintaining the SDD.
2. Whenever unpublished price-sensitive information (UPSI) is shared, internally or externally, it should be promptly recorded in the SDD.
3. Regardless of whether UPSI is shared internally or externally, it is crucial to make the necessary recordings in the SDD.
4. The SDD should not be outsourced and must be maintained internally with robust internal controls, checks, time stamping, and audit trails to prevent any tampering. Once entries are made in the SDD, they cannot be altered or modified. In case any modification is required, a separate entry should be made, referencing the earlier one and providing full corrected details along with the reasons for correction.
5. The SDD should be preserved for a minimum of 8 years after the completion of the relevant transactions.
6. In the event of receiving information from the Board regarding any investigation or enforcement proceedings, the relevant information in the SDD should be retained until the completion of such proceedings.
7. The database should digitally capture the names of individuals who have shared UPSI and the recipients of such information, along with their PAN or any other identifier.

Conclusion:

Maintaining an SDD is a shared responsibility among regulatory bodies, financial institutions, and IT departments. By ensuring data accuracy, implementing robust security measures, performing regular maintenance, providing training, and conducting audits, organizations can maintain the integrity and reliability of their SDDs. Adhering to these essential points will contribute to effective insider trading prevention and foster a culture of compliance and trust in the financial industry.