The Securities and Exchange Commission (SEC) plays a central role in preventing insider trading and protecting the fairness of U.S. financial markets. Insider trading occurs when individuals use material, non-public information to gain an unfair advantage in buying or selling securities. Such activity undermines market integrity and erodes investor trust. The SEC combats this through regulation, monitoring, enforcement, and education.

First, the SEC sets clear rules under the Securities Exchange Act of 1934 and other laws that prohibit trading on undisclosed, sensitive information. It requires company executives, directors, and major shareholders to report their trades, creating transparency for investors. The agency also monitors unusual market activity, often using advanced surveillance tools to spot suspicious trades that may indicate insider use of privileged information.

Enforcement is another major pillar. The SEC investigates potential violations and can bring civil lawsuits against individuals or firms engaged in insider trading. Penalties may include heavy fines, the return of illegal profits, and bans from serving as corporate officers. The SEC also works with the Department of Justice when criminal prosecution is warranted.

Finally, the SEC emphasises education by informing companies, insiders, and the public about compliance responsibilities. By combining oversight, enforcement, and awareness, the SEC helps ensure markets remain fair, transparent, and trustworthy for all participants.