SEC Issues Guidance Regarding Investment Adviser Code of Ethics Reporting Exception

The staff of the SEC’s Division of Investment Management (the Staff) recently issued guidance regarding an exception to the reporting requirements for personal securities transactions of certain investment advisory employees. Section 204A of the Investment Advisers Act of 1940 (the Advisers Act) requires registered investment advisers to have written policies and procedures reasonably designed to prevent the adviser and its employees from misusing material nonpublic information. Rule 204A-1 thereunder provides that an adviser’s Code of Ethics must include requirements that certain advisory personnel with access to nonpublic information regarding clients’ securities transactions or holdings or who are involved in making securities recommendations to clients (Access Persons) report personal securities accounts and trading information to the adviser so that the firm and the SEC can identify potential improper activity. However, the rule grants an exception to these reporting requirements when an Access Person’s securities are held in an account over which he or she has “no direct or indirect influence or control” (the Reporting Exception).

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