November 4, 1992
TO: COMPLIANCE COMMITTEE NO. 22-92
RE: CODES OF ETHICS; CHINESE WALL PROCEDURES
__________________________________________________________
Codes of Ethics
At the October 29 meeting of the Compliance Committee, we
discussed several recent cases that had been brought against
mutual fund portfolio managers for improper personal securities
transactions (see Memoranda to Compliance Committee Nos. 5-92 and
6-92, dated June 17 and June 22, 1992, respectively) and whether
there were any steps that could be taken to prevent similar
future violations. One suggestion that was made was for the
Institute to circulate to the Committee a copy of its drafting
guide for codes of ethics, which was prepared in 1981 when Rule
17j-1 under the 1940 Act became effective, and to request that
members compare their codes with the drafting guide and advise us
of requirements or procedures that are included in their codes
that are not included in the drafting guide (including changes
made in response to these cases, such as requiring reports on the
receipt of gratuities). The Institute would then compile a list
of these items and circulate them so that members could consider
adding them to their codes as appropriate.
Please provide either Frances Stadler or me with any such
requirements or procedures included in your firms’ codes of
ethics by November 20, 1992. Frances can be reached at 202/955-
3514 and my direct number is 202/955-3523. Our fax number is
202/659-1519.
"Chinese Wall" Procedures
A separate item that was discussed at the meeting concerned
the implementation of "Chinese Wall" procedures to prevent the
misuse of inside information that employees of fund advisers may
obtain about issuers of securities in which the funds may trade.
The SEC staff and certain members of Congress have expressed
concern that employees who are exposed to inside information are
not being adequately isolated to prevent the misuse of that
information. For example, a portfolio manager or employees who
have contact with a portfolio manager may serve on creditors
committees and, in that capacity, may receive inside information
about an issuer.
At the meeting, it was decided that it was not advisable at
this time for the Institute to develop guidelines for drafting
"Chinese Wall" procedures. Among other things, members felt that
any such guidelines would have to be so general to take into
consideration the diverse sizes, organizational structures and
practices of members and the different circumstances in which
employees could receive inside information that they might not be
useful. Instead, we asked whether any members who had written
"Chinese Wall" procedures in place would be willing to share them
with the other members of the Committee (of course, with the
firm’s name blacked out) to assist them in preparing their own
procedures. If you are willing to do so, please send us a copy
of your procedures by November 27, 1992, and we will circulate
them to the Committee.
We also announced at the meeting that the Institute is
considering forming a Subcommittee on creditors’ rights issues
relating to investment companies to give members an opportunity
to exchange views on these issues, and, if appropriate, to work
on projects that may be useful in addressing them. If you
interested in participating on the Subcommittee, please contact
Michael Branch at 202/955-3524 by November 11, 1992.
Amy B.R. Lancellotta
Associate Counsel
Attachment