Under an expanded personal trading policy, employees of the U.S. Securities and Exchange Commission (SEC) are banned from investing in financial sector funds.
The SEC has long prohibited its employees from trading the securities of brokerage firms, asset managers and other firms that the regulator directly oversees. Now, it’s extending that prohibition to funds that focus on the financial sector, amid the same concerns about conflicts of interest that have prevented direct trading of financial firms’ securities.
Other changes to the SEC’s ethics rules include a new provision that allows employees to comply with reporting requirements by authorizing their financial institutions to send data about their trading activity and portfolio holdings directly to the SEC.
“This amendment is expected to enhance internal compliance controls by facilitating the detection and remediation of violations in real time, reducing burdensome manual processes for transaction confirmations and reporting, and providing an independently verifiable source for compliance monitoring and testing,” the SEC said in a release setting out the changes.
Additionally, the updated rule exempts diversified mutual funds from certain trading restrictions, given the low risk of conflicts of interest or insider trading involving a diversified security. However, funds that are focused on specific sectors or geographies will still be subject to the requirements.
The SEC said this change is intended to “facilitate the efficient and effective use of agency resources to monitor compliance of securities investments and transactions that involve significant ethics risks.”
The rules continue to require SEC employees to pre-clear trades and comply with minimum holding periods, while also banning short selling, margin trading, derivatives trading, and participating in initial public offerings.
“These amendments modernize our compliance program and will help ensure the SEC honours the trust the public has placed in our agency,” said SEC chair, Gary Gensler, in a release.