CODE OF ETHICS & INSIDER TRADING
"We urge advisers to take great care and thought in preparing their codes of ethics, which should be more than a compliance manual. Rather, a code of ethics should set out ideals for ethical conduct premised on fundamental principals of openness, integrity, honesty and trust. A good code of ethics should effectively convey to employees the value the advisory firm places on ethical conduct, and should challenge employees to live up not only to the letter of the law, but also to the ideals of the organization."
-See Investment Adviser Codes of Ethics.
Advisers Act Release No. 2256, Aug 31, 2004
CODE OF ETHICS
All registered investment advisers are required to have a Code of Ethics, the purpose of which is to set forth standards of conduct expected of advisory "access persons" (a defined term) and address conflicts that arise from personal trading by advisory personnel and other access persons. The rule sets forth a minimum set of requirements, such as prohibitions of the use of material non-public information for personal gain and reporting personal securities transactions. However, there are variables a firm should consider, such as the scope of its pre-clearance requirements, restrictions on transactions in certain securities, and limitations on the number and identity of brokers used by access persons. In addition, the firm should consider controls relative to accounts over which an access person claims to have no influence or control. How you craft your code depends on the firm's business and its affiliated relationships, among other considerations. If the firm offers mutual funds (with certain exceptions), it will also be required to comply with Rule 17j-1 under the Investment Company Act of 1940, as amended. Your firm should consider the cost/benefit of an automated solution to monitor and report personal securities transactions. The SEC will examine how well the adviser has complied with the minimum requirements of the rule, including the rule's record keeping requirements. Automation can be helpful in this regard.
INSIDER TRADING
Insider trading is both a crime punishable by monetary penalties and imprisonment, and a civil offense punishable by up to three times the profit gained or the loss avoided by the insider trading activity. All registered investment advisers are required to adopt policies and procedures reasonably designed to prevent the misuse of material non-public information for personal gain. To avoid running afoul of the anti-fraud provisions of Section 10(b) of the Securities and Exchange Act of 1934 requires that a firm educate its investment personnel, implement procedural safeguards consistent with the scope of the firm's business, and conduct post-trade analyses, including trading activity against the firm's trading restrictions, use of expert network consultants, if applicable, and market-moving public reports. In drafting its policy, firms should consider carefully circumstances under which the firm and its supervised persons may receive material non-public information from unaffiliated insiders in breach of such person's fiduciary duty to his or her agency.