How to deal with draconian personal trading restrictions when working in a Wall St bank
August 5, 2012 7:27 PM   Subscribe

I've just accepted a job at a large Wall St bank. I have a large amount of cash to allocate at the moment and don't want to leave it in the bank earning zero interest. However, I am designated a "sensitive person" for compliance purposes in the new job and am subject to very severe restrictions on personal trading. How do people in similar situations manage their personal finances?

In short, the rules at my new job include not only the usual need to get preclearance from compliance for any personal trades, but I am required to get written approval from both my line manager AND the head of my department for any new trades/investments. For some mystifying reason this even applies to ETFs.

To be clear, I am not asking how to get away with insider trading. My position is in economic research -- I do not cover individual stocks at all. Over the past several years I have traded small cap stocks on the side as a hobby -- these are mostly tiny stocks that have no coverage by big banks. So I see no reason why I can't continue this on a limited basis. If not, I would be happy to simply trade index ETFs, but even then I need multiple approvals.

Anybody out there have experience handling similar dilemmas?

At the moment I'm thinking my options are:

- Keep to a couple of trades a month (mostly in ETFs). And hope that my line manager/dep head won't mind being bugged for approval. I am understandably reluctant to go this route as I'm not sure how it will reflect on me and don't particularly want my manager to know all the details of my personal finances. Am I overthinking this though? Are these manager signoffs just a formality and something that everyone does?

- Avoid individual ETFs/securities and purchase mutual funds or index funds directly from someone like Vanguard (I hate mutual funds, but what choice do I have?). Technically I think I would still have to report this, but since its not going through a brokerage I can't see how they would ever find out.

Once again, I'm not looking to do anything untoward here, but am just trying to figure out the best way to manage my personal finances with minimum hassle within a system that seems ridiculously restrictive given my lack of access to sensitive information.

Any ideas welcome.
posted by kramer1975 to Work & Money (7 answers total) 5 users marked this as a favorite
Response by poster: Just to be clear, I am obviously well aware of why these rules are in place, and it's not very helpful to tell me to go work somewhere else. What I am asking is how other people in similar situations go about working within the rules. (I have never worked on Wall St before). ie is it a big deal to ask for approval a couple of times a month? Am I better off just buying mutual funds, etc.
posted by kramer1975 at 7:42 PM on August 5, 2012 [3 favorites]

You put in your requests, they are checked against the restricted list, and if not there, you put in your order at a specified time. Totally routine; big banks have people who do nothing but process PA ("personal account") trade requests all day long, and signing off on the approval is something your line manager and his boss will do routinely as well. Trading daily might raise eyebrows, but a few times a month is totally normal.

You do know that all of your brokerage statements will be copied to your employer, don't you?
posted by MattD at 8:39 PM on August 5, 2012 [1 favorite]

Response by poster: Thanks MattD. Yes I do know that all my brokerage statements will go to my employer and don't have a problem with that. Was just wondering how "routine" it was to get approval for PA trading requests, so your response is reassuring.
posted by kramer1975 at 8:42 PM on August 5, 2012

I have been both an employee looking to do the same as well as a member of the compliance department. This is a PITA, but also totally routine. Considering the issues on both sides (you v compliance) I would make initial investments in whatever ETFs you wish and ask for permission for some sort of regular investment program increasing your positions in these initial ETFs.

If you want to be short, find an ETF that you can play from the long side that mimics being short.

If you are looking to be an active trader, forget it. These rules are both from a compliance standpoint and from the point of view of the firm that wants you focusing on your job, not your trading. Although there is a good argument to be made that you are putting your money where your mouth is (an economist who gets long and is bullish on the markets), the potential conflicts of interest are too great for the compliance folks to monitor.

Another option is to get a money manager from within the firm and have them invest it, but that is scary in my opinion.

Copies of your statements are a no brainer. It used to be that we hired an hourly employee, often a college student, to open the statements and file them. They were asked to look at every 4th one and check it against the black and gray lists of stocks. Now, a lot of it is automated with the review being done electronically. No one actually looks at your statement.

The risk of trading individual stocks is unique in that you could be long stock ABC. Then some investment banker at your firm is going to help them sell a small number of bonds ($5 million) and you will be prevented from selling your position or buying more for almost a month.

After you are there for a while and you are comfortable talking with your boss or a more experienced employee, ask them what they do with their money in terms of the rules. I am sure there are standard protocols for most at the firm.
posted by JohnnyGunn at 9:31 PM on August 5, 2012

I have to do this.

ETFs or funds of any type are typically not a big deal. Individual securities are what they are concerned about and it gets a lot more difficult. The compliance questions are harder and there is typically a blackout period if a stock is being bought/sold in a client portfolio. The result for me was that it was years before I could buy or sell some stocks.

There is normally a minimum holding period (60 days is typical).

At a big bank, trade approvals will almost certainly be done through some kind of electronic system that is a giant pain in the ass to use (we had Sungard Protegent). At a smaller shop, it is an email to a compliance person.

You submit a trade request, it gets approved, and you usually have 24 hours to complete the trade. If you do not complete it, you need to cancel it out or your compliance person will call you when they see your next duplicate statement and see the trade was not done.

The biggest thing is having all of your accounts available for duplicate statements/monitoring, and asking for approval to open new ones. I had an E-Trade account and wanted to trade some offshore stuff, so I needed to add "global trading" to it, which counted as a new account (though I didn't realize it). I got chewed out when they noticed that there was this new account on the statements that I hadn't gotten approved.
posted by milkrate at 1:35 AM on August 6, 2012

I'm in the same boat, and I basically leave my money in cash-equivalents or medium-duration CDs.

While I'd much rather earn some real income on my money, I do look at holding cash as a positive for people who work in finance. Your income is going to be correlated to the overall performance of the stock market. Even if you're not directly or even indirectly working with the equities group, there still will be a high correlation between market performance and the overall compensation pool. I don't have any scientific studies to back this up, but after 12 years in the industry I've clearly seen a pattern.

Given this relationship, it makes a lot of sense to me to have your savings in a vehicle that has very low correlation to the equity markets.
posted by Guernsey Halleck at 2:55 AM on August 6, 2012 [2 favorites]

Totally routine. In fact some places you might be marked out as odd if you weren't constantly obsessing over your PA.

Also - this isn't actually a particularly stringent policy. Its pretty much what some compliance consultants rec as best practice.

I sort of agree with G H. Be careful about the amount of capital you allocate to straight equities. Your comp and more importantly your employment are rather strongly correlated with the indexes even if you aren't in equities.
posted by JPD at 4:06 AM on August 6, 2012

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