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PERSONAL TRADING POLICY & IMPLEMENTING AN AUTOMATED PLATFORM Public Pension Financial Forum (P2F2) 6 th Annual Conf

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PERSONAL TRADING POLICY & IMPLEMENTING AN AUTOMATED PLATFORM Public Pension Financial Forum (P2F2) 6 th Annual Conference Sacramento, California. Nancy Ross VP, Compliance October 20, 2009. Presentation Outline. Background – compliance function and the approach to new initiatives.

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PERSONAL TRADING POLICY & IMPLEMENTING AN AUTOMATED PLATFORMPublic Pension Financial Forum (P2F2) 6th Annual ConferenceSacramento, California

Nancy Ross

VP, Compliance

October 20, 2009

presentation outline
Presentation Outline
  • Background – compliance function and the approach to new initiatives.
  • Legal requirements – insider trading, tipping and fiduciary duties
  • Benchmarking – best practices and recommendations
  • Case study of OMERS personal trading controls:
    • The way we were – identifying weaknesses
    • Where we are – improvements to date
    • Where we plan to be – next steps
    • How it went – automation hurdles

October 20, 2009

omers quick facts the plan
OMERS Quick Facts – The Plan
  • Ontario Municipal Employees Retirement System
  • Defined benefit pension plan
  • Managed by OMERS Administration Corporation, a statutory non-share corporation
  • Over 920 employers (municipal governments & agencies including police, fire, ambulance, library, children’s aid, etc.)
  • Over 390,000 members and over 106,000 receiving pensions and benefits

October 20, 2009

omers quick facts investments
OMERS Quick Facts – Investments
  • AuM > $44 billion, current asset mix approximately:
  • < 60% public – managed internally, except some non-Canadian equities with external managers
    • Canadian equities < 14%
    • Foreign equities < 21%
    • Fixed income < 25%
  • > 40% private – managed by wholly owned investment entities
    • Real estate >15%
    • Infrastructure <17%
    • Private equity < 9%

October 20, 2009

omers compliance function
OMERS Compliance Function
  • Central Compliance function created in June 2006
  • Now team of 6 reporting to Chief Legal Officer
  • Areas of responsibility:
    • Legislative Compliance Program – monitor and report quarterly to Board Audit Committee
    • Regulatory Filings – substantial shareholder reporting, AML/Anti-terrorism monitoring and reporting
    • Policy Co-ordination – draft and review policies, manage online library (Slide 13), communicate changes (Slide 14)
    • Code of Conduct – policy, training (Slide 15 & 16)
    • Personal & Insider Trading – policy, training, Restricted List management, personal trading monitoring (policy is available athttp://www.omers.com/Assets/investments/Personal+$!26+Insider+Trading+Policy.pdf )

October 20, 2009

implementing compliance initiatives
Implementing Compliance Initiatives
  • Steps:
  • Research legal requirements and industry practices
  • Establish policy
  • Develop processes for monitoring
  • Communicate to and train employees
  • Implement and monitor
  • Review results
  • Update policy and processes as needed

October 20, 2009

legal requirements
Legal Requirements
  • US Federal Sentencing Guidelines: Effective Compliance and Ethics Program Minimum Requirements:(http://www.ussc.gov/2007guid/8b2_1.html)
    • Standards and procedures to prevent and detect criminal conduct
    • Knowledgeable Board that exercises reasonable oversight, and specific individuals assigned responsibility
    • Reasonable efforts to exclude unsavoury individuals
    • Periodically conduct ethics training and disseminate information to employees on standards and procedures
    • Ensure program is followed, monitored, audited and evaluated, and has a whistle-blowing system
    • Promote and enforce with incentives and discipline
    • Remediation to prevent similar violations

October 20, 2009

personal trading legal principles
Personal Trading - Legal Principles
  • Fiduciary Duty – employees may not use non-public information or their position for personal benefit (i.e. front running, conflict of interest, broker preferences)
  • Insider Trading and Tipping – trading in securities of a public company on the basis of material non-public information about the company, or disclosing the information, except in the necessary course of business, is prohibited (US 1934 Act Rule 10b5-1: considered fraud to trade, or tip if in breach of a duty of confidence)
  • “material” – if known would reasonably be expected to significantly move the market (US caselaw – viewed by a reasonable investor as having significantly altered the total mix of information made available)

October 20, 2009

personal trading policy
Personal Trading Policy
  • Benchmarking of Internal Controls:
  • Policy and acknowledgements
  • Disclosure and monitoring of trades and holdings
  • Pre-clearance of trades
  • Blackout periods
  • IPO and private placement limits
  • Institutional trades where held personally by PM
  • Short term trading limits

October 20, 2009

personal trading policy11
Personal Trading Policy
  • Purpose:
  • Protects individuals and the Fund by helping to prevent inadvertent violations
  • Minimizes appearance of individuals profiting from knowledge gained through their position
  • Demonstrates reasonable controls required to defend legal action if violation occurs

October 20, 2009

personal trading policy application
Personal Trading Policy – Application
  • “ACCESS PERSON”
  • Director/employee/consultant with:
  • Ability to influence investment decisions or
  • Access to investment information:
    • Direct through systems, premises
    • Proximity to those with access
  • “COVERED ACCOUNT”
  • Access Person has ability to influence trades
  • May include accounts of family, associates, trusts
  • Excludes managed accounts, exempt trade accounts

October 20, 2009

slide14
Periodic newsletter (every 2-3 months)
  • Summarizes policy changes and new compliance initiatives
  • Red titles link to Policies and Procedures Library
omers the way we were
OMERS – The Way We Were
  • Pre-2007 program:
  • Investment compliance assigned to one individual within the investment group
  • Written policy requiring:
  • Reporting of trades as transacted
  • Annual holdings disclosure and acknowledgement
  • Trade pre-clearance through an online system
  • Monitored by external agent

October 20, 2009

omers the way we were cont d
OMERS – The Way We Were (cont’d)
  • Problems:
  • Online system:
    • Security (not issuer) matched
    • Securities set up by users
    • Manual institutional data entry
    • No verification processes
  • Control List widely accessible
  • Reporting of trades irregular
  • Monitoring limited, not timely

October 20, 2009

omers where we are
OMERS – Where We Are
  • Initial Improvements:
  • Policy rewritten – more guidance, stronger controls
  • Compliance responsibility for:
    • Maintaining Restricted List, processes
    • Data entry with daily verification
  • Account statements directly from brokers
  • Automated solutions for institutional pre-clearance and monitoring to limit Restricted List access
  • Monitoring follow up

October 20, 2009

omers where we are20
OMERS – Where We Are
  • Recent Implementation:
  • Online trade pre-clearance system with security master feed operating at the issuer level
  • Online certification of accounts held
  • Restricted List populated from trading system in real time plus manual capability for private deals, isolated instances
  • Rules for pre-clearance configurable for different employee groups (permits firewalls)

October 20, 2009

omers where we plan to be
OMERS – Where We Plan to Be
  • Next Steps:
  • Daily feed of trade confirmations from brokers
  • Daily reports of previous day’s trade violations
    • Failure to pre-clear, trade after pre-clearance expired or denied, short term trade, etc.
  • Periodic reports analyzing data for other trends
    • Front-running, high closing, unusual trading patterns, excessive pre-clearing, etc.
  • Other certifications
    • Outside activities, gift & entertainment

October 20, 2009

omers how it went
OMERS – How it Went
  • Automation Hurdles:
  • Accurate issuer/security data essential
    • Single point of entry, up-to-date
  • Product choice – externally hosted
    • Concern is security of trading information
  • Product choice – integrated with trading system
    • Concern is security of internal systems
  • RFP process – limits to big players
  • Brokerage feeds require cooperation
    • 13 in US, none in Canada yet

October 20, 2009

slide23
QUESTIONS ?

October 20, 2009