SEC Staff Issues Guidance on Reporting of Personal Securities Transactions and Holdings by Advisers’ Access Persons

July 1, 2015

The staff of the SEC’s Division of Investment Management recently issued guidance (the “Guidance”) on the application of Rule 204A-1 under the Investment Advisers Act of 1940 (the “Rule”) in the context of certain advisory personnel’s trusts and third-party discretionary accounts.

Rule 204A-1 provides that an adviser must maintain a code of ethics that requires, among other things, its “access persons” to periodically report their personal securities transactions and holdings to the adviser’s chief compliance officer or other designated person. Access persons include the adviser’s directors, officers and partners, and its supervised persons who have access to material nonpublic information about the adviser’s securities recommendations and client securities holdings or transactions. Subsection (b)(3)(i) of the Rule (the “reporting exception”) provides an exception to the reporting requirement when an access person’s securities are held in accounts over which that person had “no direct or indirect influence or control.”

Different arrangements raise questions as to whether the reporting person has sufficiently relinquished direct or indirect influence or control over a securities account. For example, the SEC staff believes that blind trusts can be arranged such that the access person would have no influence or control. Questions have been raised as to whether the reporting exemption applies when an access person is a grantor or beneficiary of a trust managed by a third-party trustee and has limited involvement in trust affairs, or when a third-party manager has discretionary investment authority over an access person’s personal accounts.

The SEC staff has expressed its belief that an access person providing a trustee with management authority over a trust for which that person is grantor or beneficiary, or providing a third-party manager discretionary investment authority over a personal account, is not – in itself – sufficient for an adviser to reasonably believe that the access person had no direct or indirect influence or control over the trust or account. The SEC staff believes that an access person’s discussions with the trustee or third-party discretionary manager about account holdings could reflect direct or indirect control or influence, unless the trustee or third-party manager merely summarizes or explains account activity and does not receive directions or suggestions from the access person.

The Guidance specifies that an adviser may be able to implement additional controls to establish a reasonable belief that an access person has no direct or indirect influence or control. Such policies and procedures should be designed to determine whether the access person actually has direct or indirect influence or control, not whether the third-party manager had discretionary or non-discretionary authority. In designing these policies and procedures, an adviser may consider, for example:

  • obtaining information about a trustee or third-party manager’s relationship to the access person (i.e., independent professional versus friend or relative; unaffiliated versus affiliated firm);
  • obtaining periodic certifications1 by access persons and their trustees or discretionary third-party managers regarding the access persons’ influence or control over trusts or accounts;
  • providing access persons with the exact wording of the reporting exception and a clear definition of “no direct or indirect influence or control” that the adviser consistently applies to all access persons; and
  • on a sample basis, requesting reports on holdings and/or transactions made in the trust or discretionary account to identify transactions that would have been prohibited pursuant to the adviser’s code of ethics, absent reliance on the reporting exception.


1 The SEC staff expressed its view that a general certification would likely not be sufficient to establish that an access person did not exercise influence or control. Rather, advisers should request that the access person certify that he or she did not suggest that the trustee or third-party discretionary manager make any particular purchases or sales of securities, direct the trustee or third-party discretionary manager to make any particular purchases or sales of securities or consult with the trustee or third-party discretionary manager as to investment allocations.


If you have any questions regarding the matters covered in this memo, please contact any of the partners and counsel listed below or your primary attorney in Seward & Kissel’s Investment Management Group.