Controls on Expert Network Usage

Expert networks connect investment firms with industry professionals — former executives, doctors, engineers — willing to be paid for a call sharing their domain knowledge. Used well, this is a legitimate source of the kind of granular industry color that helps a researcher build a mosaic of publicly available information into a differentiated view. The risk is that some experts, deliberately or carelessly, share material nonpublic information (MNPI) about the specific company they used to work for, and a firm that trades on that information — even unknowingly received through a paid consultation — can face the same insider-trading exposure as if an employee had leaked it directly.

Firms manage this with a standard set of controls: compliance pre-approval before any call, a compliance monitor listening live or reviewing a recording afterward, an explicit reminder given to the expert at the start of every call that they must not disclose confidential or nonpublic information about their current or former employer, and a hard rule barring calls with experts currently employed at, or recently departed from, a company whose securities the firm is actively trading around an event like earnings. Any MNPI that does slip through in a call must be reported immediately and the firm must refrain from trading the affected name until the information becomes public or is confirmed to have had no bearing on trading decisions.