Employee trade pre-clearance software is used to allow or deny prospective transactions by a company’s staff. Where the organisation has a policy on what it deems to be unacceptable trades or where there is a regulatory imperative to prevent employees from holding certain securities, this digital tool automates the process of clearing the requested trades.
This helps to prevent trading activity that creates a conflict of interest with clients or otherwise could affect the employee’s ability to advise those clients in an impartial manner. It can also stop trades that could result in market manipulation or market abuse.
Features of employee trade pre-clearance software
Trade applications
Employees use the software to submit requests for approval before executing securities transactions. The platform is accessible to all relevant parties connected with the company on a device through a portal on the corporate system.
List of acceptable trades
The software allows the user to request a trade in any security that is not restricted according to the company’s rules. The compliance department sets parameters within the tool based on what it considers to be restricted trades according to its employee trading policy.
They make these customised decisions based on legal obligations, client considerations and what that company regards as acceptable trading in its own instruments. Employees cannot request permission to trade in restricted instruments.
Alerts and notifications
The employee trade pre-clearance software generates automated alerts and notifications when a pre-clearance request requires further scrutiny. It comes from a team member or when a trade previously agreed becomes contrary to the policy for some reason.
Record-keeping
Using an online tool for pre-clearance creates a digital audit trail of which trades were restricted and when, as well as proving that you implemented a pre-clearance process to bolster your compliance processes.
Knowledge base
The software acts as a knowledge base for employees regarding compliant trading. It can store the latest company policy documents and provide information about restricted trades and the reasons for their restriction.
Benefits of pre-clearance software
Efficiency
There are so many requirements for companies to ensure their employees trade responsibly and within the boundaries of compliance that pre-clearance software is essential for employee trades. To complete this task manually would cause an excessive strain on company resources, making an automated solution more cost-effective.
Regulatory compliance
An automated pre-clearance process helps firms maintain compliance with industry regulations such as The Markets in Financial Instruments Directive (MiFID II) and the Market Abuse Regulation (MAR).
Risk mitigation
An effective pre-clearance system is essential to risk mitigation. It helps prevent misconduct and reduces the potential negative impacts of both regulatory risk and reputational risk that could result from non-compliant trades made by employees.
Timely authorisation
Using an automated system to approve employee trades provides immediate authorisation. It allows the employee to make their transaction in good time rather than having to wait for a compliance team member to work through a backlog and approve.
Better transparency
Companies can instantly generate reports relating to violations and attempted violations, as well as gaining an overview of each employee’s trade requests and holdings. It ensures transparency over trading activity within the workforce and helps in the event of an investigation.
Do we have to install employee trade pre-clearance software?
Employee trade pre-clearance software is not mandatory, but it is a solution to meeting obligations of investment firms to be aware of employees’ trades and prevent market abuse and manipulation. The alternative is a laborious paper process. Pre-clearance software often comes as part of a package within employee personal trade monitoring software, adding additional functionality to your efforts to prevent market abuse.