FRM Part II · FRM Exam Part II · Case Study: Investor Protection and Compliance Risks in Investment Activities
An investment firm's employee receives a tip from a company insider about an unannounced acquisition and buys shares in a personal account. Which compliance control would most directly have prevented this trade?
A pre-clearance requirement combined with a restricted list for personal trading would most directly prevent the trade. It lets compliance block employee transactions in securities where material non-public information may exist, unlike NAV reconciliations, liquidity stress tests or suitability questionnaires.
- AA pre-clearance requirement and restricted list for employee personal tradingCorrect
- BA quarterly NAV reconciliation
- CA stress test of liquidity coverage
- DA client suitability questionnaire
Explanation
Pre-clearance of personal trades and restricted lists block employees from trading securities where material non-public information may exist. NAV reconciliation, liquidity stress tests and suitability questionnaires address other risks.
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