Hungarian National Bank Cracks Down on Insider Trading: Record Fines in 2020

The Hungarian National Bank (MNB) reported a significant surge in insider trading fines in 2020, totaling 120 million forints. This increase in enforcement actions comes amidst heightened scrutiny and a series of high-profile cases.

The Appeal and Risks of Insider Trading

Insider trading - the illegal practice of trading securities based on confidential information - can be tempting. It’s the stuff of movies and TV shows, with characters like Gordon Gekko from “Wall Street” and Bobby Axelrod in “Billions” making it seem glamorous. However, it’s essential to remember that insider trading involves gaining an unfair advantage by leveraging confidential information, which is against the law and unethical.

Understanding Insider Trading

Insider trading is the act of buying or selling securities using non-public information. It’s an unlevel playing field for investors, allowing those with insider knowledge to make informed decisions before the rest of the market.

The Perils of Insider Trading

Despite its potential rewards, insider trading is a risky endeavor. Renowned investors like Warren Buffett and André Kostolany warn against it, arguing that there are better, ethical ways to build wealth. Additionally, the “buy the rumor, sell the fact” strategy suggests earning substantial gains by reacting to insider information before it’s officially announced - but selling beforehand is crucial to avoid the risk of inflated expectations.

Insider Trading in Hungary: A History of Enforcement

The Hungarian National Bank (MNB) stepped up its efforts to combat insider trading in 2020, resulting in a record number of uncovered cases. While the total fines didn’t reach an all-time high, this represents a significant leap in enforcement actions.

High-Profile Insider Trading Cases

Insider trading in Hungary dates back to the late ’90s, with incidents involving Novotrade shares and Gábor Rényi. Since then, cases have been reported with companies like Synergon, Humet, and BIF. The stakes were raised in 2006 when Megdet Rahimkulov, a wealthy Hungarian businessman, received a 250 million forint fine.

Safeguarding Against Insider Trading

Given the risks and consequences of insider trading, it is crucial for companies to take measures to safeguard sensitive information and ensure fairness in the market.

Strategies to Protect Against Insider Trading

Large companies employ strict insider information policies, code language, and even techniques like having colleagues wait at printers to collect official documents. Such strategies can help prevent insider trading by making it more difficult for insiders to carry out their illicit activities undetected.

The Consequences of Insider Trading

The consequences of insider trading can be severe. Fines, imprisonment, and irreparable damage to personal and professional reputations are just some of the risks involved. In Hungary, insider trading carries a maximum three-year prison sentence, although this penalty has yet to be imposed.

Adapting to the Changing Landscape of Insider Trading

As technology advances, insider traders are becoming more sophisticated, employing increasingly difficult-to-detect methods. Keeping up with these evolving practices and ensuring fairness in the market remains a complex and ongoing challenge for market regulators.