Personal Accounts: Rule 407 and You

Well, thanks to one particularly interesting post on needing advice on how to address his issue with being “Let Go” posted here on WSO by Valuetrader400, I thought it would be a nice thing to explain something called NYSE Rule 407 to all of you prospective monkeys looking for full-time employment. I’m not calling Value out, but if anyone read his story, he made a few mistakes. We all do. The only reason why I mention Value, is because he did not disclose his Personal Account in the proper way to his firm. I’m highlighting this fact because I’ve seen people get fired over having undisclosed outside accounts, and with all the regulatory concerns arising from our current environment, being left holding the bag and the trouble that ensues for some extra cash made by trading away from the firm.

What Is the NYSE Rule 407?

So, what is NYSE Rule 407 and why am I writing about some arcane law that you don’t need to worry about? Well, NYSE Rule 407 is a disclosure rule. If you want to read the entire text of the rule, you can check it out here. It’s quite interesting actually, but I’m going to summarize the key points for you. If you work at a firm that does business with NYSE Euronext (read: The Exchanges), is a member of FINRA or is registered with the SEC, the following applies:

1. If you have a preexisting Personal Account at another firm, you must notify your employer and tell them about the account and set your firm’s compliance group up to receive duplicate statements and confirms on your account if it’s not held at your place of employment
2. In order to open up new accounts, you need to obtain your firm’s permission to do so if they are not held “in-house” or are with an approved broker unless you have your firm’s approval to do so and it is accompanied by written permission – a Rule 407 Letter
3. If you do open a new account that is held at another firm you need to make sure duplicate confirms and statements go to your firm’s compliance group
4. If you have any financial interest or power to make investment decisions on an account, you must disclose it
5. One Last Point, and let me stress this, unless your opening up an account with an approved firm, you cannot open an account with any other firm regardless of whether it is a domestic or international firm unless your employer approves it

Take a look at a definition from My Accounting Course here.

Yeah… lots of rules, right? Basically, make sure your account is held at an approved broker. Make sure your firm is set up to receive copies of your account statements and trade confirms. If you want to open up an account elsewhere, get approval and make sure you can provide a Rule 407 letter with it. If you have any authority or financial interest in an account, I would be safe and make sure your employer knows about it and see what they want you to do about it. And if you have any questions about this, ask compliance.

How Does Rule 407 Apply To Me?

I want to clarify a few things here, particularly the line in bold.

1. It doesn’t matter where you work, you may need to move your accounts regardless of what you want due to firm policy. When I started at my firm, I had my account at a non-approved broker and despite having a financial advisor who I used for years, my firm refused to have a Rule 407 letter issued letting me keep my account with that guy. I was given 2 options; either move my account to an approved broker, be it in-house or on the list of brokers, or close it.
2. If you have any financial interest or control on an account, it must be disclosed. I can’t stress this enough. Trading outside the watch of your employer is a BIG problem that can get your ass fired, particularly when you have insider information or are using that to front run, game or trade alongside clients. A guy I worked with was asked to resign over having an undisclosed outside account (although there is more to it, this was the official reason) that he had closed.
3. When you start at orientation, your firm should go over this, and if they don’t, ask about their Personal Account and Employee Trading policies. This way you don’t get screwed regarding holding times, trading rules and simple stuff that will get you canned.

For all you summer analysts out there, although I don’t expect you to need to disclose your accounts, I would check on orientation about what they want you to do. I’m a few years removed from the whole “Summer Analyst” group, so I would ask at orientation.
Good Luck Monkeys, and don’t let something as simple as Rule 407 screw you over.

Read More About Your Personal Finances On WSO

• Personal Acount Dealing Restrictions
• Ideas for Personal Account
• How Will My Company Find Out I Have A Personal Trading Account?

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