SEC’s OCIE Issues Risk Alert on Unauthorized Trading
The SEC’s Office of Compliance Inspections and Examinations has issued a National Examination Risk Alert concerning practices for preventing unauthorized trading in BD and RIA firms. OCIE offers advice gleaned from its examination program. OCIE suggests firms strengthen front office supervision by (i) ensuring more than one person or function supervises trading, (ii) reviewing large books or trading by less experienced traders, (iii) separating trading functions, and (iv) restricting access. OCIE suggests daily monitoring of excessive errors, manual adjustments, risk limit breaches, and over-concentration. OCIE also recommends mandatory vacations without trading access and independent trading reviews. The Risk Alert suggests reviews of personal trading accounts and personnel electronic communications where the firm identifies anomalies.