Employee Trade Monitoring Compliance Best Practices Provided by the SEC

Compliance best practices to follow when creating personal securities trading policies and procedures.

Compliance Best Practices

As it relates to employee securities trading, monitoring, and reporting, the principals and CCO of RIA firms should consider this SEC staff guidance in relation to crafting personal securities trading policies and procedures:

  • Prior written approval before access persons can place a personal securities transaction ("pre-clearance").
  • Maintenance of lists of issuers of securities that the advisory firm is analyzing or recommending for client transactions, and prohibitions on personal trading in securities of those issuers.
  • Maintenance of "restricted lists" of issuers about which the advisory firm has inside information, and prohibitions on any trading (personal or for clients) in securities of those issuers.
  • "Blackout periods" when client securities trades are being placed or recommendations are being made and access persons are not permitted to place personal securities transactions.
  • Reminders that investment opportunities must be offered first to clients before the adviser or its employees may act on them, and procedures to implement this principle.
  • Prohibitions or restrictions on "short-swing" trading and market timing.
  • Requirements to trade only through certain brokers, or limitations on the number of brokerage accounts permitted.
  • Requirements to provide the adviser with duplicate trade confirmations and account statements.
  • Procedures for assigning new securities analyses to employees whose personal holdings do not present apparent conflicts of interest.

However, it's important to note that simply establishing tailored and robust policies and procedures is not enough. The CCO of RIA firms needs to not only establish such policies and procedures but also ensure that they are properly implemented. CCOs should ensure that not only all required reports are being submitted by all properly identified access persons, but also that all reports, pre-clearance approvals, and trading activity are being carefully reviewed and monitored.