While the analysis is limited to the U.S. market, few would be surprised if this were also happening in the Canadian stock market
. ETFs have proliferated widely, while enforcement of insider trading laws is not especially stringent in Canada, at least compared with the United States.
Last year, a total of five insider trading proceedings were concluded across the 13 separate provincial and territorial securities regulators, according to a Canadian Securities Administrators report. Fines and penalties of $683,000 were levied. As for enforcement, a 2020 study estimated that only a fraction of insider trading activity in the U.S. is prosecuted – roughly 15 per cent. That number may be far lower in Canada, which has a reputation for being soft on financial crime. An analysis from 2006 showed U.S. authorities 20 times more likely to prosecute violations for insider trading than Canadian regulators, after accounting for the size discrepancy between the two stock markets.
For those willing to trade on corporate secrets, there is a safer way – “shadow trading,” as coined by a 2020 paper. It examined trading prior to corporate announcements, but in “economically linked firms,” rather than the shares of the company making the news. “Our findings suggest insider trading is more pervasive than just the ‘direct’ forms that have been the focus of research and enforcement to date,” the researchers wrote.
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