NYSE Beefs Up Surveillance of Insider Trading : Will Use Computer to Watch for Violations

Times Staff Writer

In a move to strengthen its self-policing efforts, the New York Stock Exchange has set up a market-surveillance unit that uses a computer database to seek out trading violations related to the growing number of merger and acquisition transactions.

Big Board officials said Wednesday that the new unit will eventually have a staff of eight and use a computer program called “ASAM,” for automated search and match, that will search for links between persons privy to merger information and purchasers of company stock.

Using such data sources as Standard & Poor’s stock directories and Securities and Exchange Commission filings, the data bank will include the names of thousands of corporate officials and companies, NYSE officials said. It will list thousands of others who might know details of pending deals, including lawyers, investment bankers and accountants, public relations and advertising personnel and even printers, they said.

Array of Details


Also in the database will be an array of personal details about company insiders, such as their country clubs, colleges, charitable and fraternal associations and even the ZIP codes of their residences.

Officials said they will ask corporate officials for the chronology of events that led to the merger or acquisition and will track the history of trades during the period.

“Some super-sophisticated investors will still try to hide their identities, but we think that if we trace these common interests we can be really effective in tracking down them and their partners,” said Donald J. Solodar, the exchange’s senior vice president for surveillance.

High-Speed Analysis


Exchange investigators have used similar matching techniques in the past, but officials said they expect the computer’s high-speed sorting to enable them to cut in half the time for the average investigation, which now lasts seven months. They said they believe investigators’ accuracy also will be improved.

Continued publicity about insiders who have illegally traded on information not made known to the public has prompted a general call for the stock exchanges to step up their enforcement efforts.

Exchange officials said the unit was organized in light of the continuing flurry of major mergers and acquisitions. Its staff will be assisted by others in the exchange’s 85-person market surveillance division.

The New York Stock Exchange has been steadily increasing its use of computers to track trading irregularities.


David Marcus, the exchange’s vice president for regulatory services, asserted that the exchange now catches all but a “small percentage” of insider-trading violations. “This will reduce that figure even further,” he said.

New York Stock Exchange investigations provided the initial leads in a number of highly publicized insider-trading cases, including one concerning former Deputy Defense Secretary Paul N. Thayer and another concerning a ring of persons who traded on advance information gained from a printer for Value Line investment reports.