1. PERSONAL TRADING POLICY & IMPLEMENTING AN AUTOMATED PLATFORM Public Pension Financial Forum (P2F2) 6th Annual Conference Sacramento, California
Nancy Ross
VP, Compliance
October 20, 2009

2. Presentation Outline
Background – compliance function and the approach to new initiatives.
Legal requirements – insider trading, tipping and fiduciary duties
Benchmarking – best practices and recommendations
Case study of OMERS personal trading controls:
The way we were – identifying weaknesses
Where we are – improvements to date
Where we plan to be – next steps
How it went – automation hurdles
October 20, 2009
October 20, 2009

3. OMERS Quick Facts – The Plan
Ontario Municipal Employees Retirement System
Defined benefit pension plan
Managed by OMERS Administration Corporation, a statutory non-share corporation
Over 920 employers (municipal governments & agencies including police, fire, ambulance, library, children’s aid, etc.)
Over 390,000 members and over 106,000 receiving pensions and benefits
October 20, 2009
October 20, 2009

4. OMERS Quick Facts – Investments
AuM > $44 billion, current asset mix approximately:
< 60% public – managed internally, except some non-Canadian equities with external managers
Canadian equities < 14%
Foreign equities < 21%
Fixed income < 25%
> 40% private – managed by wholly owned investment entities
Real estate >15%
Infrastructure <17%
Private equity < 9%
October 20, 2009
October 20, 2009

5. OMERS Compliance Function
Central Compliance function created in June 2006
Now team of 6 reporting to Chief Legal Officer
Areas of responsibility:
Legislative Compliance Program – monitor and report quarterly to Board Audit Committee
Regulatory Filings – substantial shareholder reporting, AML/Anti-terrorism monitoring and reporting
Policy Co-ordination – draft and review policies, manage online library (Slide 13), communicate changes (Slide 14)
Code of Conduct – policy, training (Slide 15 & 16)
Personal & Insider Trading – policy, training, Restricted List management, personal trading monitoring (policy is available at )
October 20, 2009
October 20, 2009

6. Implementing Compliance Initiatives
Steps:
Research legal requirements and industry practices
Establish policy
Develop processes for monitoring
Communicate to and train employees
Implement and monitor
Review results
Update policy and processes as needed
October 20, 2009

7. Legal Requirements
US Federal Sentencing Guidelines: Effective Compliance and Ethics Program Minimum Requirements: (
Standards and procedures to prevent and detect criminal conduct
Knowledgeable Board that exercises reasonable oversight, and specific individuals assigned responsibility
Reasonable efforts to exclude unsavoury individuals
Periodically conduct ethics training and disseminate information to employees on standards and procedures
Ensure program is followed, monitored, audited and evaluated, and has a whistle-blowing system
Promote and enforce with incentives and discipline
Remediation to prevent similar violations
October 20, 2009
October 20, 2009

8. Personal Trading - Legal Principles
Fiduciary Duty – employees may not use non-public information or their position for personal benefit (i.e. front running, conflict of interest, broker preferences)
Insider Trading and Tipping – trading in securities of a public company on the basis of material non-public information about the company, or disclosing the information, except in the necessary course of business, is prohibited (US 1934 Act Rule 10b5-1: considered fraud to trade, or tip if in breach of a duty of confidence)
“material” – if known would reasonably be expected to significantly move the market (US caselaw – viewed by a reasonable investor as having significantly altered the total mix of information made available)
October 20, 2009
October 20, 2009

9. Personal Trading Policy
Benchmarking of Internal Controls:
Policy and acknowledgements
Disclosure and monitoring of trades and holdings
Pre-clearance of trades
Blackout periods
IPO and private placement limits
Institutional trades where held personally by PM
Short term trading limits
October 20, 2009
October 20, 2009

10. October 20, 2009
October 20, 2009

11. Personal Trading Policy
Purpose:
Protects individuals and the Fund by helping to prevent inadvertent violations
Minimizes appearance of individuals profiting from knowledge gained through their position
Demonstrates reasonable controls required to defend legal action if violation occurs
October 20, 2009
October 20, 2009

12. Personal Trading Policy – Application
“ACCESS PERSON”
Director/employee/consultant with:
Ability to influence investment decisions or
Access to investment information:
Direct through systems, premises
Proximity to those with access
“COVERED ACCOUNT”
Access Person has ability to influence trades
May include accounts of family, associates, trusts
Excludes managed accounts, exempt trade accounts
October 20, 2009

13. October 20, 2009

14. Periodic newsletter (every 2-3 months)
Summarizes policy changes and new compliance initiatives
Red titles link to Policies and Procedures Library
October 20, 2009

15. October 20, 2009

16. October 20, 2009

17. OMERS – The Way We Were Pre-2007 program: Written policy requiring:
Investment compliance assigned to one individual within the investment group
Written policy requiring:
Reporting of trades as transacted
Annual holdings disclosure and acknowledgement
Trade pre-clearance through an online system
Monitored by external agent
October 20, 2009
October 20, 2009

18. OMERS – The Way We Were (cont’d)
Problems:
Online system:
Security (not issuer) matched
Securities set up by users
Manual institutional data entry
No verification processes
Control List widely accessible
Reporting of trades irregular
Monitoring limited, not timely
October 20, 2009
October 20, 2009

19. OMERS – Where We Are Initial Improvements:
Policy rewritten – more guidance, stronger controls
Compliance responsibility for:
Maintaining Restricted List, processes
Data entry with daily verification
Account statements directly from brokers
Automated solutions for institutional pre-clearance and monitoring to limit Restricted List access
Monitoring follow up
October 20, 2009
October 20, 2009

20. OMERS – Where We Are Recent Implementation:
Online trade pre-clearance system with security master feed operating at the issuer level
Online certification of accounts held
Restricted List populated from trading system in real time plus manual capability for private deals, isolated instances
Rules for pre-clearance configurable for different employee groups (permits firewalls)
October 20, 2009
October 20, 2009

21. OMERS – Where We Plan to Be
Next Steps:
Daily feed of trade confirmations from brokers
Daily reports of previous day’s trade violations
Failure to pre-clear, trade after pre-clearance expired or denied, short term trade, etc.
Periodic reports analyzing data for other trends
Front-running, high closing, unusual trading patterns, excessive pre-clearing, etc.
Other certifications
Outside activities, gift & entertainment
October 20, 2009
October 20, 2009

22. OMERS – How it Went Automation Hurdles:
Accurate issuer/security data essential
Single point of entry, up-to-date
Product choice – externally hosted
Concern is security of trading information
Product choice – integrated with trading system
Concern is security of internal systems
RFP process – limits to big players
Brokerage feeds require cooperation
13 in US, none in Canada yet
October 20, 2009
October 20, 2009

23. QUESTIONS ?
October 20, 2009
October 20, 2009