As I wrote about yesterday on the code of ethics for an investment adviser, one of the
requirements of registering with SEC as an investment adviser is implementing a
code of ethics. The most involved part of the code is the extensive reporting
requirement on securities activities to the chief compliance officer.
Rule 204A-1 under the Investment Advisers Act of 1940 takes
the approach that extensive reporting of trading activities by employees of an
investment adviser will been a strong deterrent from getting involved in
insider trading.The rule breaks the reporting into two baskets: holdings report
and transaction report.
Holding Report Under Rule 204A-1
Annually, each access person needs to submit a report of
their securities holdings. The report needs to include the following:
The rule does not require this to be a calendar year.
Transactions Report Under Rule 204A-1
Quarterly, each access person needs to submit a report of
their securities trading activity. The report needs to include the following:
The report is due within 30 days after the end of the
Access Person Under Rule 204A-1
The reporting obligations are limited to "access persons" at
the investment adviser. These are every employee that
Those are some very broad categories. For most private
funds, I would guess that most of their employees could be considered "access
persons." It's probably easier and less likely to get you in trouble if you
consider all employees to be access persons and require all employees to submit
reports. Not easier on the compliance officers, but easier on employee
Exceptions From Reporting Requirements
Rule 204A-1 has some exceptions to personal securities
reporting. No reports are required:
Plus there is also a group securities that are not
Preclearance for IPOs and Limited Offerings
Rule 204a-1 requires an access person to obtain approval
before they any security in an initial public offering or in a limited
offering. A "limited offering" is a private placement and would include the
purchase of an interest in a private investment fund.
What About Alternative Investment Fund Advisers?
These rules make sense for an adviser focusing on tradable
securities, but make much less sense for advisers to funds that focus on
alternative investments. Venture capital is an obvious example, but it seems
they have escaped from the registration requirement imposed on other private
equity firms under the financial reform bills.
commentary on developments in compliance and ethics, visit Compliance Building,
a blog hosted by Doug Cornelius.