Two Trading Compliance Challenges: Valuation and Trade Errors

Course Description

Trade errors are inevitable. What distinguishes compliant firms is that they detect and identify them quickly, resolve them fairly and expeditiously, and minimize the likelihood of errors in the first place. The SEC will focus on trade errors and their resolution during its examinations of investment advisers. The Investment Advisers Act is silent on how to handle trade errors and is equally silent on the issue of who should bear the responsibility for losses resulting from such errors. In fact, the SEC staff has provided limited guidance on the issue. A review of enforcement proceedings, however, does shed light on the SEC’s position with respect to the correction of trade errors. This session will provide insight and guidance on what SEC examiners will expect to see and articulate best practices for addressing trade errors that are consistent with fiduciary standards.

Recent market events offer valuable lessons regarding the need for effective policies and controls addressing the timely and accurate valuation of securities and other investments. This session will emphasize the “best practices” that the SEC staff has identified during examinations and highlight those areas where enforcement actions have been brought.

Learning Objectives

After attending this course, attendees should be able to:

  • Examine how the SEC views trade error accounts
  • Provide common examples of trade error resolutions
  • Explore factors that should be considered when calculating a trade error
  • Highlight SEC staff positions and enforcement proceedings involving trade errors
  • Discuss how an adviser should document a trade error and its resolution and disclose the firm’s policy to clients
  • Explain the SEC’s focus on valuation practices
  • Recognize conflicts of interest that might arise with the valuation process
  • Examine forensic tests of valuation procedures

For Whom: Chief Compliance Officers, Management Compliance Staff at all levels, Legal counsel, Personnel involved with client reporting, composite performance reporting, determining assets under management for client billing, and/or trading and reconciliation of illiquid securities. Persons involved with monitoring client portfolios

Suggested Skill Level: Intermediate

Instructional Method: Group Internet-Based and Group-Live

Pre-requisites for participation: No prerequisites are required. However, attendees can benefit by reviewing the Investment Advisers Act of 1940 to become familiar with the structure and terms.

Advance Preparation: None

Continuing Education Credits:

NRS Continuing Education Guide
Recommended CPE Credit: 2 in the Regulatory Ethics field of study
Recommended IACCP CE Credit: 2
Recommended CA MCLE Credit: 2
Recommended CFP Credit: 2