Access person

An Investment Adviser's own staff often know things about client trades before the public does. If a staff member trades in their own personal account using that knowledge, it can hurt the very clients the firm is supposed to serve.

The workbook describes, as a global best practice, how the US Securities and Exchange Commission (SEC) handles this: certain staff, called 'access persons', are placed under extra reporting and approval rules for their own personal securities dealings.

Under the SEC's rules, cited by the workbook as an international example, not a SEBI requirement, an adviser's code of ethics must require every access person to report their personal securities holdings when they first become an access person, and at least once annually thereafter; report their personal securities transactions at least once every quarter; and get pre-approval from the Chief Compliance Officer (CCO), or another designated person, before investing personally in an IPO or a limited offering.

All of this reporting flows to the adviser's CCO, who is also responsible for keeping records of the code, of any violations, and of every access person's written acknowledgment of having received a copy of the code.

At a US-based investment advisory firm the workbook uses as its example, a junior analyst who regularly sees the firm's model portfolio changes before clients do would be classified as an access person.

When she joins the firm, she must disclose her existing personal stock portfolio, worth about USD 40,000, to the CCO. From then on, she must report every personal securities transaction at least once every 3 months, and file an updated holdings report at least once every 12 months. If she later wants to personally invest USD 2,000 in a hot new IPO, she cannot simply place the order — she must first get pre-approval from the CCO, who checks it does not conflict with any client interest.

Chapter 19 (Ethical Issues), section 19.8.1, 'Securities and Exchange Commission US', under the chapter's 'Global Best Practices' heading, sets out the access person reporting and pre-approval requirements as an example of a code of ethics from outside India. Expect a question that identifies these SEC requirements as a global best practice example, not a SEBI rule, and asks what an access person must report and how often.

• This is presented in the workbook as a US SEC practice, cited as a global example of ethical governance — do not treat it as a mandatory SEBI requirement for Indian Investment Advisers unless a question specifically frames it that way.
• The frequency differs by report type: holdings are reported at least annually, but transactions are reported at least quarterly — do not swap the two.
• Pre-approval is required specifically for IPOs and limited offerings — the workbook does not extend this pre-approval requirement to all personal securities transactions.