A Guide for Compliance Officers:
Advice on Insider Trading for COs
Presenter Brandon Ortiz of Blue River Partners will provide an analysis of the key elements of insider trading, highlight important recent enforcement actions all CCO's should know, and share a discussion of best practices for CCO's in 2016 from how a solid compliance program can mitigate risks to how to spot telltale signs.
Mr. Ortiz is a Managing Director at Blue River Partners where he manages the implementation and administration of the firm’s compliance service offerings to alternative asset managers, which include fund launch, ongoing compliance program management and individual compliance project services.
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Full Transcription Below
What do we do as CCO's? How should we approach MNPI? How should we approach insider trading within our organizations? I've touched on it twice already, I mean it's really, at the end of the day a very conservative approach to MNPI, a very conservative approach to insider trading. At the beginning of it all with respect to our compliance programs, it's all about the tone at the top and having a robust and effective compliance environment.
How to promote an effective compliance environment?
Managing directors, the founders of the organization, the partners need to be involved, and there has to be buy in in the context of your compliance program. There has to be an open door policy with the CCO and the other compliance professionals in the organization. The ability to ask questions, it really leads to your front office folks, the people who are on the phone with consultants, with expert networks depending on your strategy, your fundamental, your analyst on your desk, being able and being comfortable, and wanting to come and ask questions about MNPI, and whether or not they should be concerned about certain things. That is the initial key in our view in the context of compliance and how it relates to MNPI.
"Senior leadership must be visible and vocal advocates for a strong culture of compliance."
You need to provide tools and resources, and obviously your policies and procedures need to be applicable to your business. You need to really look at what your strategies are and what your structure is with respect to your firm, and implement correct policies and procedures.
Aguilar, commissioner, Luis Aguilar, has a quote here about top down strategy, "Senior leadership must be visible and vocal advocates for a strong culture of compliance."
How should a Compliance program look in your business?
In terms of the compliance program itself, how should that look in the context of your business? Again, some of these ... Most of these things are applicable to all businesses. Some of the policies and procedures that you develop should be based on what type of strategies your funds are implementing.
As I described before, who is in your organization? You have to tailor your programs to the business itself. These, as I mentioned are applicable to all of us. Monitoring personal trades, having pre-clearance procedures in place that are applicable to your business and based on your strategies. Monitoring firm trades as well. Best performing trades and securities with news and press releases. If some things come out recently, are your trades ... Is there a connection between your trades and news that comes out after you've made those trades and been successful.
A restricted list, obviously very key. Make it clear where your MNPI's is located. Restrict securities when MNPI is ... Your staff or someone in your front office has received MNPI.
The disclosure of personal brokerage accounts, obviously key. For most of us who are registered investment advisers, you have to have your personal brokerage accounts disclosure, holding reports, trading activity reports, et cetera. Monitoring and reviewing those to insure that personal trading ... I'm sorry, insider trading is not happening within your organization.
Then training of employees. Obviously a huge thing for all of us as well on an annual basis and on an ongoing basis. Either you have online training, in person training. Bring in a compliance organization such as Blue River to discuss insider trading cases and to discuss what's happening in the context of insider trading currently. Talk to law firms. Many of them will come in and also give you a full overview of what's happening in the context of insider trading.
As I mentioned before, identify areas of risk. Expert networks. Do you have consultants’ relationships? Trading on rumors or passing on information without knowing its sources. It's important to do a full analysis of your compliance program with respect to insider trading.