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CLIENT ALERT: SEC Staff Issues Risk Alert on Strengthening Practices for Preventing and Detecting Unauthorized Trading

March 2012
Steve Wolosky, Ron Berenblat, Ryan Replogle

On February 27, 2012, the Office of Compliance Inspections and Examinations of the Securities and Exchange Commission (the “Staff”) issued a risk alert intended to assist firms with mitigating the risks posed by “unauthorized trading” in brokerage and advisory accounts. The Staff views unauthorized trading as a “permanent concern to financial institutions and regulators,” and the risk alert was issued in the wake of the recent highly-publicized incident at UBS where unauthorized trading in the bank’s investment banking division reportedly resulted in a $2 billion loss. In the risk alert, the Staff provides useful insights on policies and controls that may be implemented by firms in order to monitor, detect and prevent “unauthorized trading,” which is construed broadly to include (1) “rogue” or other unauthorized trading, (2) exceeding firm limits on position exposures, risk tolerances and losses, (3) intentional mismarking of positions, and (4) creating records of nonexistent or “sham” transactions. In undertaking any review of business practices and internal controls, the Staff recommends firms identify specific circumstances that might permit an individual or group to engage in or conceal unauthorized transactions. The Staff cautions, however, that the recommendations in the risk alert are not complete and “they constitute neither a safe harbor nor a checklist” for firms in complying with their supervisory and compliance obligations.

A copy of the risk alert is attached hereto. If you would like to discuss the risk alert or any matter regarding your firm’s compliance controls and procedures, please contact the Olshan attorney with whom you regularly work or one of the attorneys listed below.

Click here to read.

This publication is issued by Olshan Grundman Frome Rosenzweig & Wolosky LLP for informational purposes only and does not
constitute legal advice or establish an attorney-client relationship. To ensure compliance with requirements imposed by the IRS, we inform you that unless specifically indicated otherwise, any tax advice contained in this publication was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matter addressed herein. In some jurisdictions, this publication may be considered attorney advertising.

Copyright © 2012 Olshan Grundman Frome Rosenzweig & Wolosky LLP. All Rights Reserved.
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