One of the principal challenges many hedge fund managers face is effectively and efficiently enforcing a firm’s compliance policies and procedures given limited compliance resources. This problem has been historically acute with respect to personal trading compliance because of the significant manual effort required to ensure compliance with applicable rules and in-house personal trading requirements. Nonetheless, in the past decade, technology vendors have made significant progress in developing personal trading compliance solutions that can significantly enhance the effectiveness and efficiency of personal trading compliance programs, at relatively modest prices. Technological solutions can facilitate personal trading reporting as well as enforcement of a firm’s personal trading restrictions and prohibitions. Furthermore, vendors can now tailor such solutions to meet the needs of hedge fund managers with varying operational requirements. As such, hedge fund managers should explore and understand the various personal trading compliance solutions available to them to determine whether any such solutions will further advance the goals of their personal trading compliance programs. This is the third article in a three-part series on personal trading policies and procedures for hedge fund managers. The first article in this series discussed general considerations for hedge fund managers in developing effective personal trading policies; the scope of persons that may be covered by such personal trading policies; and the reporting obligations imposed on registered hedge fund managers by Rule 204A-1 under the Investment Advisers Act of 1940 (Advisers Act). See “Key Legal and Operational Considerations for Hedge Fund Managers in Establishing, Maintaining and Enforcing Effective Personal Trading Policies and Procedures (Part One of Three)
,” Hedge Fund Law Report, Vol. 5, No. 3 (Jan. 19, 2012). The second article discussed various personal trading restrictions and prohibitions, including limitations on the number of brokerage firms covered persons can use to effect personal trades; pre-clearance requirements for personal trades; blackout periods during which personal trades cannot be effected; holding periods applicable to securities owned by covered persons; and other types of personal trading restrictions and prohibitions. See “Key Legal and Operational Considerations for Hedge Fund Managers in Establishing, Maintaining and Enforcing Effective Personal Trading Policies and Procedures (Part Two of Three)
,” Hedge Fund Law Report, Vol. 5, No. 4 (Jan. 26, 2012). This third article in the series describes various solutions designed to facilitate monitoring of personal trading compliance by hedge fund managers. Specifically, this article discusses various technological solutions designed to facilitate personal trading reporting, including the various methods for obtaining electronic personal trading data (instead of paper data) from broker-dealers
; various solutions for automating
personal trade monitoring; automated trade pre-clearance solutions; and a summary of key considerations for hedge fund managers when evaluating personal trading compliance solutions. See generally “How Hedge Fund Managers Can Use Technology to Enhance Their Compliance Programs
,” Hedge Fund Law Report, Vol. 4, No. 41 (Nov. 17, 2011).