Preclearance

Approval from compliance before an employee makes a personal trade, so a conflict with client or firm activity is caught before the trade rather than after it.

Where you will meet it

Preclearance appears in 2 learning outcomes on the CFA syllabus. A few of them:

• Propose practices and procedures that stop breaches of the ethics Code and the Standards of Professional Conduct before they occur
  CFA Level II · Ethical and Professional Standards

  “Firms control personal-trading conflicts with a written policy: preclearance of trades, blackout periods around client orders and rating changes, duplicate confirmations sent to compliance, holdings reports at hiring and periodically after, and limits on IPOs and private placements, with any permitted participation precleared.”

• Propose practices and procedures that head off breaches of the Code and Standards under Standard VI, Conflicts of Interest
  CFA Level III · Ethical and Professional Standards

  “Personal trading rules are the main defence: preclearance of employee trades, blackout periods around client orders and portfolio rebalances, duplicate broker confirmations sent to compliance, holdings reports on joining and periodically, and a ban on, or preclearance for, IPOs and private placements.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
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All terms beginning with P · Glossary