Block Trading Guidance
ADVISOR-INITIATED
TRANSACTIONS VS CLIENT-INITIATED TRANSACTIONS
Advisor-initiated
transactions
are those transactions that are a result of a decision made by the advisor on
behalf of the client(s), such as a decision to buy or sell certain securities
based on market movements, research or other existential variables. NOTE:
This is not exclusive to accounts traded through models or on a discretionary
basis. This is for any accounts being traded on the same day/same security/same
custodian based on advisor recommendations or initiatives. Client-initiated
transactions are those transactions that are the specific result of a
client request, upon which the advisor is taking action such as an unsolicited
trade request, withdrawal request or deposit of funds.
WHAT IS THE CURRENT POLICY?
Our current policy states that all advisor-initiated
transactions for client accounts that an advisor manages, which are
trading the same security on the same day at the same custodian, must block the
trades together to receive an average price. If these trades are not blocked
together, corrective action may be taken to ensure that all clients are
receiving the same average price. This will result in corrected confirmations
being created by the custodians for each of the affected client accounts.
If there are client-initiated transactions
for client accounts that an advisor manages, which are trading the same
security on the same day at the same custodian as other client accounts that
the advisor manages, those should be blocked on a best-efforts basis. If those
transactions are unable to be blocked with other applicable transactions, then
corrective action will not be taken UNLESS one of the transactions is for the
advisor’s personal or related accounts and the advisor’s personal or
related transactions received a better price than the client. (Go to the Power Portal
Knowledgebase to see our Advisors Pre-Clearance Policy
Guidance.) Below are some examples showing the difference between
advisor-initiated and client-initiated transactions, respectively.
Examples
Scenario 1: Advisor A is selling XYZ security for 3 clients at Schwab
based on research Advisor A conducted on XYZ security.
Outcome: Advisor A must block the three transactions of XYZ
security through the Schwab platform or applicable trading tool, as these are
advisor-initiated transactions. Failure to do so could result in corrective
action.
Scenario 2: After executing and allocating the three transactions for
XYZ security at Schwab, Advisor A is selling XYZ security for a different
client at Schwab because they called to request $10,000. This request caused
the Advisor to have to assess where to liquidate assets to raise the money
needed for the client’s withdraw request. Advisor A was unable to block the
trade with the other trades done previously, because they were already
allocated.
Outcome: The trade for the client-initiated transaction does not
have to be corrected even though it was unable to receive the same average
price as the rest of the clients that traded the same security on the same day.
Scenario 3: Advisor B contacts 5 different clients throughout the day
to recommend the sell of XYZ security in their accounts at Fidelity. The
advisor obtains approval from each client throughout the day to place the
recommended transactions.
Outcome: Advisor B must block the five transactions of XYZ security
through the Fidelity platform or applicable trading tool, as these are
advisor-initiated transactions. Failure to do so could result in corrective action.
HOW
ARE TRADES MONITORED?
Compliance
conducts a daily review of transactions that have the same advisor, custodian
and security on the same day. Any trades that did not receive the same price
are flagged for further review. Any transactions that are flagged will be sent
with a request for the following information:
1. Which transactions
were Advisor-initiated vs Client-initiated?
2. What was the
reason the trades were unable to be block-traded?
3. Are any of the
accounts your own personal or related accounts?
Based on
the responses provided by the Advisor, Compliance will determine whether
corrective action is required and notify the Advisor what, if any, additional
steps may need to be taken for the affected transactions.
ADDITIONAL
INFORMATION
Additional information on
Block Trading, including contact information for Advisory Services and the
various custodians can be found in our Block Trading FAQs on the Power Portal
Knowledgebase. If an Advisor does
not know how to Block Trade through their specific custodian, please contact
Advisory Services for direction on where to obtain additional training through
the custodian platform. If you have interest in leveraging a rebalancing tool,
such as Orion’s Trade Order Management System, contact Advisory Services to
schedule time to discuss next steps.
If you
have questions about this guidance or any particular trade/scenario, please reach
out to Compliance and schedule time with us.
Thank you,
The
Mutual Compliance Team
