The U.S. Securities and Exchange Commission ("SEC") continues to invest in developing and improving its technology and data analytics capabilities. Through a combination of enhanced technology and training provided to examination staff, the SEC’s National Examination Program (“NEP”) has become more efficient, effective, and targeted when conducting on-site examinations.
ACA has observed that recently examined firms with publicly traded books have seen an uptick in regulator interest related to possible material non-public information (“MNPI”) transfer. Unsurprisingly, ACA has noted that the NEP’s request for information centers on portfolio manager or analyst meetings with different parties, including, among others, expert networks, third-party research groups, political intelligence firms, and employees of public issuers. The NEP appears to be capable of ingesting structured data (e.g., trade blotters) and unstructured data (e.g., research calendars, logs of paid and unpaid calls with experts, call notes, output from widely used corporate access data platforms, and, potentially, electronic communications) for analysis by the SEC’s National Examination Analytics Tool (“NEAT”) – all of which strengthen the examination staff’s ability to probe trading activity.
In addition, ACA has observed that these same request lists appear to be increasingly focused on how an adviser’s compliance program monitors trade workflows, as well as tracks, tests, and documents the firm’s processes with respect to potential sources of MNPI. As a result of the NEP’s increasing focus on MNPI, ACA has seen, through observations included in examination summary letters, evidence of the NEP’s opinions regarding the effectiveness of a compliance program. ACA believes this enhanced evaluation is gaining traction and warrants a review of the policies, procedures, and technologies used in your firm’s testing program.
ACA recommends that firms consider revisiting their policies, procedures, and processes to make sure they are dedicated not only to trade surveillance, but also to how the compliance program assesses its efforts on a periodic basis, including updated tracking, monitoring, and testing methods, and how to effectively work with service providers to obtain information necessary to respond to the SEC’s requests.
How ACA Can Help
ACA can help your firm develop a customized and state-of-the-art trade surveillance workflow to ensure you stay ahead of the NEP’s potential questions, NEAT developments, and potential issues. An appropriate surveillance system can leverage both existing and new technology, as well as the compliance team’s fundamental understanding of the business and trading environment.
ComplianceAlpha® is ACA's secure, centralized platform for managing your firm's risk and compliance program. The platform incorporates ACA's Decryptex® trade surveillance solution, and also includes policies, procedures, marketing reviews, and monitoring results as well as portfolio surveillance and code of ethics management (coming soon). The platform provides many of the operational, efficiency, and knowledge access capabilities discussed in this alert, ensuring that your firm is using technology to achieve a best-in-class risk and compliance infrastructure.
Below are links to download copies of recent SEC request documents:
Below are recent ACA blog posts related to trade surveillance:
- 5 Things Investment Advisers Need to Know about Regulatory Investment in Trade Surveillance
- Regulators Requesting More Complex Trading Data as Part of Investment Adviser Exams - What Your Firm Needs to Know
- SEC Requesting that Firms Submit Data via Formatted Template as Part of Investment Adviser Exams - What Your Firm Needs to Know
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