Personal Securities Holdings and Transactions

December 13, 2006

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Over the next several weeks, our electronic newsletter will be focusing upon some of those compliance requirements that every investment advisor firm should consider at the end of the year. Although we will attempt to identify some of the most common investment advisor requirements, it is important to recognize that there are different requirements among the various securities regulators.

This issue addresses an SEC registered investment advisor firm’s duty to collect or prepare updated personal securities holdings reports from all access persons. The information on the report must be current as of a date no more than 45 days before the report is submitted. The annual report does not need to be prepared at the end of the calendar year; however, the timing of the report must be consistent from year to year. The holdings report is in addition to the review of fourth quarter transaction reports. As part of the Code of Ethics rule, all SEC registered firms are required to review the activity of their access persons’ securities holdings. Quarterly transaction reports must be submitted no later than 30 days after the end of each calendar quarter.

It is important for investment advisor firms to not only collect these reports, but to also establish a system of reviewing and documenting the reviews of all reports. In particular, the review of personal securities transactions should attempt to detect instances or patterns of when the interests of the firm or its associated persons are placed ahead of the interests of the clients.

Most states also require investment advisor firms to maintain, as part of their books and records, a record of every transaction within a personal account. Most states require the transaction to be reported within 10 days after the end of the calendar quarter in which the transaction occurred. State firms must also implement policies restricting insider trading.

If your firm has questions or concerns about your firm’s requirements to monitor and review personal securities transactions, please give us a call to discuss how we can help your firm meet its regulatory obligations.

Posted by Bryan Hill
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