Best Practices for Capturing Employee Personal Trading Activity for SEC-Regulated Firms

As financial markets become more interconnected, the potential for conflicts of interest, insider trading, and other forms of misconduct increases. To mitigate these risks, the U.S. Securities and Exchange Commission (SEC) mandates that firms establish robust systems to track employees' personal trading, ensuring compliance with regulations and ethical standards set out by the regulator.

The regulator highlights the need for thorough systems to track and capture employee trades to maintain compliance, reduce the risk of misconduct, and increase transparency.

• Rule 17j-1: Requires registered investment companies to implement policies for monitoring employee trading, including the collection of quarterly transaction reports and maintenance of related records.
• Section 204A-1: Obligates investment advisers to adopt a Code of Ethics, which includes policies for tracking employee trades and managing conflicts of interest and the filing of quarterly transaction reports.
• Form 4 and 5: Corporate officers and directors must disclose personal trades in company securities, ensuring transparency and deterring misuse of non-public information.

But what does this look like in practice? How can firms ensure they are capturing the full scope of employee personal trading activities?

Best practices for monitoring employee personal trading activity

Under SEC regulations, most financial professionals are subject to stringent monitoring of their personal trading activity. This oversight is essential to address concerns around insider trading, conflicts of interest, and market manipulation.

Firms must monitor for:

• Conflicts of interest: Employees with access to sensitive information must not use it for personal gain.
• Compliance with anti-fraud provisions: The SEC prohibits trading based on insider knowledge or other unethical practices.
• Proper recordkeeping: Accurate, up-to-date records of personal trades are essential for regulatory compliance.

In their oversight, firms must demonstrate their commitment to preventing the misuse of material non-public information (MNPI) and upholding the integrity of their trading and investment processes.

How we help

ACA’s Employee Compliance Solution, part of our award-winning ComplianceAlpha^® RegTech platform, provides firms with the tools needed to streamline compliance operations and reduce risk. Key features and benefits include:

• Broker statement tracker: Employees can upload PDF statements for accounts that cannot connect electronically, ensuring manual tracking is seamless.
• Automated monitoring and alerts: Simplifies personal trading, certifications, and disclosures while identifying potential conflicts of interest.
• Efficient compliance workflows: Automates processes like statement collection and provides timely alerts, freeing teams to focus on strategic oversight.
• Customizable tools: Manage statements by account or reporting period through an intuitive interface.
• Seamless certification process: Integrates statement submission into compliance certifications.
• Managed services support: For firms lacking internal resources, ACA’s Managed Services team can handle day-to-day compliance operations, saving valuable time.

With expertise from former regulators and compliance officers, ACA’s RegTech platform is trusted by over 1,250 firms worldwide to enhance compliance and streamline operations.

Contact us today to learn how ACA can help you launch, grow, and protect your firm.

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