Week 3 Case Study – The Insider

A federal jury convicted a stock trader who worked for a well-known investment firm,
along with two alleged accomplices, of insider trading. According to the indictment, the
trader got inside information about pending mergers from lawyers. The lawyers
allegedly browsed around their law firm picking up information about corporate deals
others in the firm were working on. The lawyers would then allegedly pass their
information on to a friend, who in turn passed it on to the trader. Such “inside”
information reportedly helped the trader (and his investment firm) earn millions of
dollars. The trader would then allegedly thank the lawyers, for instance, with envelopes
filled with cash.

Things like that are not supposed to happen. Federal and state laws prohibit it. And
investment firms have their own compliance procedures to identify and head off shady
trades. The problem is that controlling such behavior once the firm has someone
working for it who may be prone to engage in inside trading isn’t easy. “Better to avoid
hiring such people in the first place,” said one pundit.

At lunch at the Four Seasons restaurant off Park Avenue in Manhattan, the heads of
several investment firms were discussing the conviction, and what they could do to
make sure something like that didn’t occur in their firms. “It’s not just compliance,” said
one, “we’ve got to keep out the bad apples.” They ask you for your advice.

Design an employee selection program for hiring stock traders. Don’t bother with the
technical qualifications for the job such as accounting and economics. Your program
should be designed to weed out the “bad apples”. Identify the following:

1. What screening test(s) would you use? Why?

a. Overview - The Stock traders advise shareholders and manage clients'

portfolios. They engage in buying and selling bonds, stocks, shares and
commodities. They develop new business by contacting potential clients to
discuss the financial services they offer. Conducting extensive research
concerning the performance of financial markets and individual securities
are also part of the job.

b. The screening test that can be used to recruit an employee in stock trader:
i. Intelligence tests: Intelligence tests are tests of general intellectual
abilities. They measure not a single trait but rather a range of
abilities, including memory, verbal frequency and numerical ability.
These will help to consider those candidates who are intelligent
enough to identify those stocks or shares that are profitable in both
short and long run, thus weeding out the “pretenders”.

ii. Situational test: the most important way of screening an employee

is by situational testing, where the candidates have to face a real
 situation and deal with it. Situational test require examinees to
respond to situations representative of the job. The interviewer can
test the candidates by providing those stocks and shares of various
companies, some are valuable and some are not, then ask the
candidates to select and manage them. The candidate who will
make the most profitable portfolio should be selected.

2. What questions would you add to the application form?

a. Apart from, questions related to educational qualifications, technical skills,

the questions that can be added to that application form are:

i. What work experiences, training or other qualifications do you have

for working in a team work environment in a stock trading
company?
ii. Based on you past work experiences, what is the most significant
action you have taken?
iii. Can you provide an example of a specific instance where you
developed a share portfolio that was highly effectively?
iv. Forecast the evolution of this industry.
v. How will you identify problems and opportunities on the job?

b. Idea: Stock traders have to invest a huge time in the procedure of buying
and selling of stocks and shares. Thus, while selecting an employee, the
employer should see that the candidate will be able to devote as much
time as required. If, employing some one new to the industry in the job,
then it noted that the candidate has perfect knowledge about the industry
and have idea about how to create portfolios’,etc. This will help in
reduction of training cost and too much time.

3. Specifically how should candidates’ backgrounds be checked?

a. Criminal Background Check

b. Credit Check
c. Skills Test
d. Aptitude Test
e. Integrity Test
f. Drug Test

4. What questions should be asked of previous employers and references?

a. Verify the candidate's dates of employment, title, and role.

b. Is the candidate eligible for rehire? Why or why not? What was his or her
reason for leaving?
 c. Determine the candidate's advancement in the company; did he or she
receive any promotions or demotions, or did she remain in the same role
throughout her tenure?
d. What was the candidate's beginning and ending salary? How often did the
candidate receive salary increases?
e. What kind of duties and responsibilities were assigned to the candidate?
Did he or she complete them satisfactorily? Did they go above and beyond
what was required without being asked?
f. What were the candidate's strengths as an employee? Would you
describe him or her a hard worker?
g. Is there anything else I should take into consideration before I hire this
candidate?
h. Ask the reference to evaluate the employee's performance the tasks likely
to be assigned in the new position

5. What else would you suggest?

a. Conduct a final interview (either panel or one on one) – another
opportunity to ensure strong comfort ability with hiring choice. Even if you
only have one candidate I would still bring them in for an informal final
interview.