Insider Trading and Restricted Lists

These are my notes from the “Insider trading and restricted lists” session at the Private Fund Compliance Forum 2012.

Two items affect insider trading: federal securities law (10b5) and a firm’s code of ethics under the Investment Advisers Act.

The panelists do not circulate a restricted list. The SEC will ask for the restricted list and ask employees if they know where the restricted list.

Given your firm’s profile, you can tailor the restrictions to the profile. The SEC does not have specific limitations.

It is important to use the insider trading list to explain why companies end up on the restricted list.

It’s also important to get companies back off the restricted list. If you signed a Non-Disclosure Agreement you need to at least respect the term of the NDA. If you lose the auction, then wait for the deal to be announced. Review the list on a regular basis to make sure it stays up to date.

What about extending the code beyond employees? Most of the panelists extend the restrictions to any relative living in the household.

If you are using paper statements, mark on the statement that you reviewed the statement. Date and initial works. Also put a check mark next to the trades shown on the statement indicating your review.

The panel also spent a fair amount of time discussing expert networks. Paying any individual for information could make them an expert network. Keep in mind that the new STOCK Act that prohibits Congressional trading also creates a duty of confidentiality when it comes to Congressional actions and makes more legislative information gathering subject to insider trading limitations.

Policies need to be reasonable designed to prevent violations of the federal securities laws.

At a minimum you need to do what you say you will do, even if that may not be enough. Document decisions and discussions about trading decisions.

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