Proprietary trading

Trading for the firm's own account rather than for clients. While the firm holds inside information it needs closer review, though stopping it altogether could itself signal the information.

Where you will meet it

Proprietary trading 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

  “The central control is an information barrier: interdepartmental communication cleared through compliance or legal, watch, restricted and rumour lists, written documentation of procedures and of enforcement, and tighter review of proprietary trading while the firm holds inside information.”

• Propose practices and procedures that head off breaches of the Code and Standards under Standard II, Integrity of Capital Markets
  CFA Level III · Ethical and Professional Standards

  “When the firm is brought over the wall on an issuer, compliance puts the name on a watch list or a restricted list, with a reach that depends on how far the information could travel in the firm, personal and proprietary trading in it gets closer review or is restricted, and staff brought over stay restricted until the information is public.”

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.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with P · Glossary