A personal account dealing system is a software platform used to monitor the personal trading activities of financial firm employees to prevent market abuse and ensure fairness. It plays a vital role in ensuring compliance with regulatory frameworks, such as MAR and MiFID II. System for personal account dealing compliance are specifically aimed at monitoring the personal trades that company workers make in the financial instruments of both the organisation that they work for as well as third party market participants.
Some financial firms build their own systems depending on their needs. Others use third-party monitoring systems designed to comply with the relevant legislation.
Employee personal trading under MiFID II
The EU regulation MiFID II highlights the importance of monitoring employee personal trading activity to prevent conflicts of interest with clients and other illegal activities. It also states that employees must not use personal trades to commit market manipulation or abuse.
Key components of personal account dealing systems
Here are the key factors to ensuring a sound employee trade compliance setup:
Detection and assessment
The monitoring process should include alert review criteria, assessment and escalation policies and proper closure guidelines.
Senior management oversight
This allows senior management to view the surveillance framework and periodically receive key surveillance metric reports.
Quality assurance
Periodic quality checks of past alerts and exceptions should be conducted.
Resources
Firms must have sufficient staffing to monitor trading levels, products and risk types. Adequate IT resources and budget are also needed for regular updates and maintenance.
Internal mechanisms
Firms should have a well-defined internal process to identify when and how suspicious personal trading activities should be escalated, and the right course of action to take.
Restrictions
Predefine the types of restricted employee personal trades to get instant alerts to suspicious transactions.
Pre-clearance procedures
A robust pre-trade clearance system should allow management to enter the criteria that must be met to allow an employee transaction.