Equity research personal trading restrictions for immediate family members?
I want to understand how typical industry personal trading restrictions for Equity Research Analysts (and associates) and their immediate family members work. Particularly in the case of immediate family members.
Lets say that someone is an equity research associate covering a certain sector. I understand that they will have trading restrictions and will need compliance approval for personal trades most of the time. But what about immediate family members like their spouses, domestic partners, boyfriend or girlfriends and parents?
Assuming that the immediate family members live in the same household, and the equity research analyst has no economic interest (no a join account and funds didnt come from the associate, also no economic interest through nominations in case of death etc) in the personal trading accounts of the said immediate family member - then will the immediate family member also be restricted in how they can trade? Would the associate need to report family member trades?
This could be a big problem because say that the immediate family member has a large portfolio that they want to self manage or do swing or options trading.
Do firms generally allow this? Are there any regulations that restrict family member trading? Can the family member open an LLC and trade through the LLC?
Lets also assume that the family member voluntarily chooses to not trade anything in the industry sector covered by the associate to avoid any appearance of conflict of interest.
Anyone who has experience with this kind of a situation before?
The fund where I work (mutual fund) defines it by household, so I have to clear all trades in my wife's account even though it's not a joint account. I am assumed to have a beneficial interest in any account owned by someone in my household, but other firms may define it differently.
My bank, and I believe FINRA also, does it based on household which I think is defined as people living under the same roof as Vandelay Industries pointed out above. Then most banks/funds take it a step further in some fashion in order to err on the side of conservatism.
Attempting to establish an LLC just to trade names is putting forth major effort to flirt with the boundaries. Just keep it simple and stick to the policies laid out by compliance. Industry regulators have no mercy with stuff like improper trading so why push it?
Besides banks/funds usually have minimum holding periods for investments so you can't really trade anything anyway.
Thanks so much for replying. A lot of this is still completely new to me so thanks for your patience with my long questions.
Ultimately, Im trying to determine if it is still worth working in the industry in a junior position as a licensed employee (equity research) with a broker dealer institution if the employees covered persons have significant money that they want to manage and trade for their themselves and their family (let's say they only trade in the employees uncovered sectors and/or foreign securities only)? Trying to understand this dilemma more.
Not trying to break the rules or skirt the law by any means. Obviously insider trading is always illegal and employees shouldn't trade before clients.
Could you give some more color on this? What if you have roommates, a girlfriend, a wife or parents or siblings or kids in the same household? Would this apply to all these people or only wife and kids? Let's assume that the employee doesn't have a beneficial interest in anyone's accounts (they don't fund them and they are not joint accounts and they are not nominated in those accounts etc).
For example, by preclearing and long holding periods you mean that the wife's trade also has to be preapproved by compliance? It's not enough if the wife just shares her monthly statements after the fact or shares her account logins with compliance so they can get daily information? Or she uses the Schwab compliance system to make any trades (which I think automatically prevents trade execution automatically if they may violate any rules, my understanding is there is no waiting for compliance to ok anything and wait 2 days for approval)
I looked into the FINRA rules and they don't seem to be so strict. They ask that covered accounts be monitored by the employer and that the employee seek permission for keeping any accounts outside the employer. And the language is vague for roommates, siblings, parents and girlfriends if the employee doesn't have control and doesn't have a beneficial interest in their accounts. My understanding is that the ONLY applicable rule is FINRA rule 3210.
There could be many combinations where things get complicated fast. Example - Wife has joint account with mother. Or mother has an LLc and wife is part of it and they also trade funds on there. What if one of these people in the household is an independent investor and short term trader or they do their own algo trading or option trading? Such rules would totally kill the other household members living?
There could be a lot of pre-exiting situations that may get messed up due to compliance.
Anyways trying to understand if this is a standard industry practice or their is some variation within the industry and that it is still possible to have a career and let the spouse do whatever they need to do without too much trouble.
Any thoughts would be very appreciated.
Unfortunately cannot post links but you can search for FINRA 3210 on google.
You are overthinking this by a lot. Nobody will be able to answer you specifically because every firm is different and as I previously stated, every firm adheres to FINRA and then takes the rules for this situation even further to avoid any possibility of noncompliance, i.e. your firm's policies will be stricter than FINRA.
Are your roommates dependent on you to any extent? Parents? GF? No firm will penalize you for having a certain living situation so don't overthink this, just use some practical thinking.
As for pre-approval and holding periods, again, each firm is different and has their own way of doing things. Maybe every single trade has to be approved, maybe only single stocks. Maybe you can trade the same industry and even same sector but can't trade your names, who knows. For your example involving your wife, I would err on the side of "yes" her trades have to be approved, whether you fund the account or not and they would need to be pre-approved by your firm's compliance team not using some broker's platform.
Again, I think you are missing the forest for the trees on this one, especially if you are considering not taking offers or pursuing something you find interesting because someone connected to you decided to day-trade AAPL or whatnot.
Do you have a research position lined up? If so, just ask them with your specifics (understand not wanting to give away too much on the forum) and they will have an answer for you. From the sound of it, I think you're going to be fine.
Threw a banana your way! Thanks for taking the time.
I'm an engineer but considering ER offers in my industry. I'm very much into investing is and significant other is a serious investor and manages capital for family.
So yeah all this is a bit of a shock I guess. I have tried to reach out to some lawyers but most didn't have much of a clue.
I wonder if it's still possible to be a married couple and one is working in ER/finance services etc and the other is managing a small family office / trading their own capital etc.
Im sure this is not a common situation at all for most industry folks.
Hi. I have an immediate family member at a hedge fund and I work in equity research in the same sector in which they invest.
I was required to declare this to my firm as well as disclose all personal trading account numbers for both of us, including retirement funds. The firm at which I work monitors all trading activity in the account, and the CCO of the fund at which my family member works received notification of the potential conflict of interest from my firm and/or FINRA.
My firm obviously does not have control over what my family member's fund invests in, and thus cannot control when they can or cannot invest in certain stocks, but they can control when I am restricted to personally trade certain stocks and both parties can see individual securities we own at any given point and when we buy or sell them.
tl;dr: Yes, it's possible for someone to be married on sell-side to someone on buy-side. It likely results in extra scrutiny of all trading done by either member.
Thanks deathTouch! Its inspiring to see your story. I dont have any problems with disclosure rules, or giving them full access to trading accounts.
Its just that, what if I was the owner of my own small family office trading stuff (stocks, ETFs, and options domestically and internationally) for myself and say my parents/extended family, but I agree to not touch anything in the industry vertical of my spouse and that the spouse has no financial interest in anything I do? I wonder what they would do about that? It seems unfair that the spouse or me should be penalized.
Seems like its a bridge too far for some of these broker dealers. The FINRA rules talk about disclosure to the employer but are not hard and fast about it.
http://finra.complinet.com/en/display/display_main.html?rbid=2403&eleme…
For purposes of paragraphs (a) and (b) of this Supplementary Material .02, an associated person need not be presumed to have a beneficial interest in, or to have established, an account if the associated person demonstrates, to the reasonable satisfaction of the employer member, that the associated person derives no economic benefit from, and exercises no control over, the account.
Anyways thanks for your comment!
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