Are Equity Analysts Allowed To Trade Personal Stocks?

I was wondering, are sell-side equity research associates or analysts allowed to buy/sell individual stocks as they please? Are there any SEC rules or industry-wide rules that prohibit this? I believe that analysts with coverage aren't allowed to trade the names they cover, but what about other stocks? And are Research Associates WITHOUT coverage allowed to trade stocks that the senior analyst covers? Thanks!

 

You can't trade your own stocks (and you don't have to be the 'lead' analyst for this to be the case), so the ban holds even if you're not actively covering stocks yourself. You can trade other stocks, but you have to go through compliance and there are certain rules in terms of how frequently you can trade etc etc. In short, it's a bit of a headache.

 

Thanks for the reply. What did you mean by "your own stocks" and "ban holds"? Let me give you an example to help clear it up for me. Say I'm a 1st year sell-side research associate covering the Coal sector. Can you tell me what my restrictions would be? Would it be an outright ban on all coal stocks, or only the names my analyst covers? And can I freely (as in, allowed) trade all other sectors?

 
Best Response

Typically in house rules are stricter than FINRA. I believe you CAN trade your own stocks under coverage as long as you do the 30 day holding period and don't buy/sell during restrictions or events you know are non-public (I.e. You know the company will announce a secondary the next day because your bank is on the deal). However, compliance has a set of in house rules because they don't want to take any chances.

As a coal associate working for a lead analyst you would not be able to invest in the stocks you guys cover as a team. Additionally you will not be able to invest in coal companies you don't cover either. That whole sector is off the table for you.

You can have a personal account as long as all trades are pre-cleared by compliance and you hold the stocks for 30 days before selling. Also, ETFs (assuming they are not weighted towards your sector) don't need to be precleared at my BB but I'm not sure if that's the case everywhere.

Also you can't participate in IPOs, doesn't matter if it's your sector or not. But I'm just not sure if this applies to all IPOs or just the ones where your firm is a bookrunner.

Under my tutelage, you will grow from boys to men. From men into gladiators. And from gladiators into SWANSONS.
 

We can't trade any stocks of companies that have been published by our research center within the last 10 days, in addition to the prohibition on your own sector.

It's a bit of a pain but you're definitely in a good position to build a long-term, fundamental portfolio as you've got access to all the research and, if you work somewhere decent, probably some number 1 ranked analysts.

 
researchresearch:

We can't trade any stocks of companies that have been published by our research center within the last 10 days, in addition to the prohibition on your own sector.

It's a bit of a pain but you're definitely in a good position to build a long-term, fundamental portfolio as you've got access to all the research and, if you work somewhere decent, probably some number 1 ranked analysts.

Yah, the investment strategy used at the firm I'm at right now was born as a result of the PM being extremely constricted in what names he could take positions on in an early broker role in the early 90s, so he ran a concentrated (15-20 names) long equity portfolio and brought the strat to this firm.
 

I can't believe they can put restrictions on how long you have to maintain a position, and that every trade has to be cleared in advance. If that's the way it is these days, that is really fucking sad.

Back when I was trading, you just had to get approval from your compliance department to open the account, and then you had to have the brokerage firm send duplicate confirmations to your compliance department. That was as far as they got involved.


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Now what if my girlfriend or mother wants to trade. Any compliance issues there are will they be ok?

 
FXTrading:
Now what if my girlfriend or mother wants to trade. Any compliance issues there are will they be ok?

They're called rathole accounts, baby, and they are God's gift to those otherwise encumbered with a compliance department. Of course, if you're going to run trades in a girlfriend's account, you'd better not fuck her over. And you better be able to trust that she won't just cash the account in one day and split (because everything will be in her name and not yours).

 

That's a very good question.

At my firm, every employee must submit the login credentials to all of his personal trading accounts so that they can be actively monitored, and all personal trades must be reported to the firm. Any unreported trades or transactions involving conflicts of interest will cause the employee to be harshly disciplined. Furthermore, there are heavy restrictions on the type, volume, duration, etc. of the trades (for example, no IPOs, no day trading, etc.)

And I don't even hold a direct trading job...just trader support!

 

In the UK and other parts of Europe it's a completely different story. I know people who are allowed to trade FX, equities and everything else but they have to hold it for at least a day etc. I guess it really much depends on the country and the firm's policy regarding a PA.

 
ezekiel:
In the UK and other parts of Europe it's a completely different story. I know people who are allowed to trade FX, equities and everything else but they have to hold it for at least a day etc. I guess it really much depends on the country and the firm's policy regarding a PA.
Yeah I was gonna say...a buddy of mine in London is an eq derivs trader and trades his own account. He has lockout periods on trades though so he can't do anything interday.
-MBP
 

I need to hold equities for at least a full year before being able to sell it. Compliance needs to approve anything I want to buy (they check if there's any upcoming deals with that firm) and gives me a window of opportunity.

I can't buy derivatives or short stock, but there is no problem trading FX (but no leverage) and the holding periode for mutual funds is 3 months.

CNBC sucks "This financial crisis is worse than a divorce. I've lost all my money, but the wife is still here." - Client after getting blown up
 
16rl:
Even if you cant trade under your own name, your mother/father/cousin can... Get a close relative to agree to open an account under his/her name and trade with that. Most of the time you just need a password to execute online trade. According to me, these personal trading rules are outdated and ignorant.

That can be quite dangerous man...

 
16rl:
Even if you cant trade under your own name, your mother/father/cousin can... Get a close relative to agree to open an account under his/her name and trade with that. Most of the time you just need a password to execute online trade. According to me, these personal trading rules are outdated and ignorant.
This is a brilliant idea . . . if you want to get fired and/or banned from the industry.
 

My firm you can only trade w/ certain brokerages, and you have to report everything that you own when you onboard. Then you have to preclear every trade before you trade it other wise you get dinged. For the fixed income side, any bonds have to be approved by the CEO, and for the equities side what you're trading has to be cleared against what the firm is currently trading. If the firm has traded it in the past 7 days, it's a no go.

 

It's fairly simple man, you just open up an account at an online brokerage and they charge you a certain transaction fee per trade. The one I use is called TradeKing, the more popular ones are E-Trade, Schwab, etc. Once you open an account, you should be able to transfer money directly from your bank account.

Not sure how helpful this will be in terms of HF recruiting, unless you have a particular trading strategy that you came up with and want to try out.

 

make sure you get in touch with compliance before you start trading! they will require your broker to send a transaction statement to them whenever you have put on a trade.

  1. you need compliance approval before you put on a trade (usually takes a day at BBs)
  2. there are certain holding periods that you need to be aware of (check all the compliance materials you got when you received your contract) - for most asset classes its 30 days

if you're not currently on the markets side of investment banking i guess it would help you to some extent.

 

1st Talk to compliance about your firm's policies. Some are very stern, some are fly by night.

2nd Go to any online broker account (scottrade is $7 a trade) and others are $8-$10.

3rd sign up and put your information and such in there.

4th Fund the account (minnimum $500)

5th Buy Apple

6th Buy other stocks you love

7th. Don't look at it everyday, you'll go insane.

Eventus stultorum magister.
 
Johnny Ringo:
6th Buy other stocks you love.

^^^^ That's a legit strategy right there

A friend doesn't go on a diet because you are fat. .......................................................................
 

Appreciate the replies. I am familiar with setting up a broker account. Question was more geared toward getting through compliance.

Any idea if this will have a negative impact on me at the firm? I have heard my groups head needs to sign off on every trade I place - this might be a big pain for him... Thoughts?

 
TT_Lambo:
I have heard my groups head needs to sign off on every trade I place - this might be a big pain for him... Thoughts?

If you're any good he'll use your ideas and you'll get a promotion.

I can't see how you can lose.

A friend doesn't go on a diet because you are fat. .......................................................................
 

You're usually asked to disclose personal accounts when you're hired, and once you're working you have to clear trades with the company first. It's mostly to protect the company from involvement in insider trading, but from my experience what you're limited to depends on the firm and your access to any sort of inside info. Like a couple summers ago I just couldn't trade the company's stock. Now I'm pretty much limited to SPDRs.

 

You can't even open an account if your parents work for a brokerage. My dad works for a BB and I was never able to open a personal account because I would have to use his firm as a broker and would have to go through their compliance department. This is only because I was claimed as a dependent on his tax return.

looking for that pick-me-up to power through an all-nighter?
 

Here's the question you need to answer. Do you work in Finance as a full time career? If the answer is yes, you are bound by your firm's policies about what you can and cannot do regarding where you open an account.

At the shop I work at, there are a few places I can open accounts at and they regularly share info regarding my account with my firm's compliance. I maintain two accounts, one where I work and one for trading. I like our options execution and don't care much for the equity markets. So I use my non-house account for equities. If I wanted to open up another account somewhere else, like with my parents money manager, I would have to, among other things, clear it with compliance, square away opening the account and provide a letter signed by my shop's compliance department (I'm forgetting what the hell it's called right now. I used to know, but I can't remember it for the love of me) and it is sent back along with the paperwork to the non-authorized shop, where they are required to notify my firm's compliance department of all activity in the account.

No, you can't get your friends to open it. That's a violation of disclosure rules and regs. Additionally, there's the Insider Trading bit... something to do with opening an account and having someone potentially trade on your behalf while you feed them trades to make.

True story though. During the bloodbath of 2008, I had a position in the SKF I made a nice short term profit in the 7 calender days I owned it and closed an position 6 days after opening it. and I got a call from compliance on the trade because of a slip up on the policy itself, whether I could trade on the 7th day of ownership or it needed to be 7 days (the 8th day) from purchase. Our firm had the policy of requiring people to hold ETFs for 7 Days provided they were not directly related to the sector they worked in and they gave me a slap on the wrist because of it.

LIBOR, you could have opened an account anywhere, but you were required to inform your father's compliance group of any trades that happened. Same deal across the board. Because he's already got his accounts there though, it's a little easier to do for book keeping purposes.

 

Just curious.. how likely is it in practice to encounter company/job where you are completely banned from trading at all and you can only keep your Assets in cash?

I save about half of my take-home pay every month and I use it to buy SPY, gold/silver ETFs, and government bond ETFs. My current firm is pretty cool with it but I'm wondering if this type of investing will be problematic at most other firms? I don't mind having to switch brokers as long as I can continue saving money from each paycheck into my passive ETF portfolio.

 

Here's the deal: Not GSET, but yes, all trades must go through a GS brokerage account. You do this by opening a PWM account and directing trades through this. The only exception to this is if you have a non-directed (i.e., passive account) with a third party. Any self-directed brokerage MUST go through the firm, and they will monitor your trades Depending on your position you may have to get pre-clearance for every trade you make, meaning you need to ask before even trading. In other jobs, you do not have to preclear, so you can trade without asking, but they will monitor your trading. You must hold all positions for 30 days or more. No short term trading allowed. There are exceptions if you lose something like 20% of the market value of a position in less than 30 days.

Hope this helps.

 

Why would you ask us? I guarantee you they have an employee compliance manual that covers this topic. Show some intelligence and initiative and either HR ask for it or find it in their materials.

Bene qui latuit, bene vixit- Ovid
 

Who's your broker?

I'd ask HR, but aside from that you have to fill out a ton of information when you set up your PA one of which asks if you work in Finance, what company, what division, what sector, etc. etc.

 

places you are required to submit what accounts you have and the amounts. Some places you have a choice of what brokerage firms you can use...I can pick from 4 I think.

 

its a huge hassle and it sucks missing out on trading opportunities. Compliance can be overzealous at least where I work. Approval for individual companies before buy or sell, tough/near impossible approval for shorts, options, or large positions relative to account size.

 

How diversified?

My fund cites its heavy concentration as a reason for having more lax rules around PA investing... rules are generally that there's no "checkpoint" so to speak, and you can trade on your own without waiting for approval, but we can't invest in anything within the sphere of our holdings, things we've looked at seriously in the past, or close competitors of holdings (though compliance has proven to not care at all about this one over time). No rules on other asset classes since we more or less don't dabble in them. Can't own ETFs with overweight positions in things we own, etc. Standard shit like that but nothing too constricting.

Generally speaking the best opportunity is if they let you invest in the fund directly as a substitute for even having a PA, and we do that, but there's situations where you spend a ton of time on a name and at the end realize there's nothing you can do to make a position. Could be size issues, illiquidity, or maybe the idea just doesn't fit with your mandate... but that's the time when it feels good to be able to put it in your PA and still be able to make money off a business you spent a lot of time on and like (or hate). So if you have the ability to invest in your fund, I'd go with that and leave the PA for maybe some standard diversification via mutual funds that might be hedges against your fund's strategy or something.

I hate victims who respect their executioners
 

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