SEC Internal Compliance Program for Personal Securities Trading of Its Employees Is a Reminder to RIAs About Supervising PST of Its Access Persons

June 06, 2009

In a May 22, 2009 U.S. Securities and Exchange Commission (“SEC”) press release, Mary Schapiro, SEC Chairman, outlined new steps being taken to strengthen the SEC’s internal compliance program to guard against inappropriate personal securities trading by SEC employees. Previous internal rules for SEC employees prohibited, among other things, short selling, carrying securities on margin, engaging in options or futures transactions in instruments whose value is derived from an underlying security, and holding a security interest in broker-dealers and registered investment advisers. These existing internal rules of the SEC also required employees to hold stock they purchased for at least six months and to report all trades within five days of receiving confirmations.

The SEC’s new compliance program for personal securities trading by its employees will include the following rules:

  • SEC employees are required to pre-clear all of their personal securities transactions;
  • SEC employees are prohibited from personal trading in securities of companies under SEC investigation regardless of whether the employee has personal knowledge of the investigation;
  • SEC employees are prohibited from personal trading in any security if an employee has access to non-public information about a company’s registration statement;
  • SEC employees are prohibited from owning securities in publicly-traded exchanges and transfer agents, in addition to existing prohibitions against owning securities in broker-dealers, registered investment advisers, and others directly regulated by the SEC;
  • SEC employees are required to authorize their brokers to provide duplicate confirmation statements to the agency; and
  • SEC employees are required to certify before any personal securities trade that they do not process any non-public information about the company being traded.

In addition, the SEC will require its supervisors to perform periodic reviews to ensure SEC employees are in compliance with these internal rules for personal securities trading. The SEC is also contracting with an outside firm to develop a new computer system that will enable pre-clearance and tracking of all employee personal securities transactions for compliance with these internal rules.

This release and the new internal SEC rules should serve as a reminder to all registered investment advisers of the importance the SEC places on developing strong policies and procedures to supervise personal securities transactions for all access persons affiliated with the adviser. Investment advisers should review their current personal securities transactions policies and procedures to ensure that they are meeting all requirements under SEC Rule 204A-1 and that adequate controls and monitoring policies and procedures are currently in place to ensure that personal securities transactions do not disadvantage the adviser’s clients in any way or raise any fiduciary requirements or anti-fraud provisions.

If your registered investment adviser needs assistance developing written policies and procedures for supervising the personal securities transactions of its access persons, please contact RIA Compliance Consultants.

Posted by Bryan Hill
Labels: PST