When reviewing an employee’s personal securities transactions, the chief compliance officer should consider the following tests:
- Compare pre-clearances against quarterly transactions reports (or confirmations in lieu of such transaction reports).
- Check the accuracy and timeliness of the reports submitted by access persons.
- Compare annual holdings reports against the quarterly transaction reports.
- Compare quarterly transaction reports against any internal restrictions (pre-trade approval, restricted lists, blackout periods).
- Periodically review the advisory firm’s list of access and supervised persons to ensure that it is up-to-date.
- Review a random selection of transaction and holdings reports to ensure that all information is being reported.
- Compare the performance of related versus client accounts.
- Determine whether clients received terms as favorable as the access person when both are trading in the same security.
If you conduct these relatively simple tests, the SEC examiner will be mighty happy (or as happy as an SEC examiner can be).
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