Investment transactions for clients and employers must have priority over
investment transactions in which a Member or Candidate is the beneficial
Nothing is inherently unethical making money from personal investments as long as (1) the client is not disadvantaged by the trade, (2) the
investment professional does not benefit personally from trades undertaken for clients, and (3) the investment professional complies with applicable regulatory requirements.
In some situations an analyst may need to trade in a way that is contrary to his or her recommendations, such as selling a recommended stock to pay for a child’s college tuition. As long as the three conditions above are met, such trades are acceptable.
A member’s trades for personal accounts must be placed only after all clients have had an adequate opportunity to act. The same applies to the accounts of family members, unless those family members are also clients.
All firms should adopt basic procedures to address personal trading conflicts.
- Limits on IPO participation
- Restrictions on private placements
- Establishing blackout or restricted periods around client trades
- Disclosure of holdings
- Providing duplicate trade confirmations to the employer
- Pre-clearance procedures for trades
- Disclosure of the firm’s trading policies to clients
The CFA Institute Standards of Practice Handbook provides several examples of potential violations involving the priority of transactions.
- trading in a stock personally before recommending it to the employer
- giving access to “hot” issues to family members ahead of clients
- giving access to other clients before trading for family members who are also clients
- trading in a stock before it is recommended to clients
- trading in a stock prior to disseminating a report