Hi all, Can somebody explain restricted and watch list and their uses. Thanks S
I passed lvl 1 and still have no idea whats that
Both are lists maintained by your company of securities that have restrictions on your ability to trade them. A stock on the restricted list is a security that you can’t buy or sell no matter what. Your kid has cancer and they are foreclosing on your house - tough luck. This is usually because your company is in possession of material non-public info about the company. A stock on the watch list needs approval by a compliance officer probably because it’s a security in which the company is trading and they don’t want it to appear that you are front-running clients. You can trade these, you just have to do it in a way approved by your company. A really good solution to all these problems is mutual funds and don’t mess with it.
Is the purpose of the watch list to avoid clueing everyone about having material non-public info, as would be the case with a restricted list? I am thinking that a watch list is a restricted list padded with extra stocks… is this a correct way of thinking about it?
No - for example, at the fund I used to work for the traders would report positions they were trading in but had no MNPI to compliance. For example, “I am building a position in Joes Automotive Supply”. That stock would go on the watch list and if you wanted to buy a security of Joes, you would submit a form to compliance. Compliance would check with the trader, possibly with you about why, and then let you trade it. About the only good reason for that would be that you were impressed by the analyst’s work and want to buy after all the clients are done and even that isn’t a good idea IMHO. If they had MNPI as we often had for bank debt transactions, the company would go on a completely different restricted list. That meant you couldn’t touch that and you would likely be fired if you did. The restricted list also covers fund transactions so if one analyst got MNPI for bank debt, another analyst couldn’t buy the stock for client accounts. There is nothing wrong with having MNPI and people have it all the time. It’s just a matter of making sure that nobody uses it for trading.
Hi everyone. I don’t know if I am going to get a reply writing on such an old thread but I’m going to try.
For restricted list I was thinking: what if one portfolio manager has MNPI and a company’s shares are put on a restricted list, but at the same time another portfolio manager doesn’t have that MNPI and wants to trade the shares for his/her clients?
I’m asking this as I found a definition of Restricted (Trading) List of which I am not sure of. It says that it’s a list of securities with a bank’s employees are prohibited from buying or selling, either for themselves or via any other person or 3rd party. According to this, it looks like the restriction is only on personal trades, not on client’s ones too. I’m confused…
Think about it this way:
Bank of America’s investment bank is doing a M&A for company A to buy company B. B of A is going to put both companies on the restricted list as they have insider knowledge that they could be acquired (A stock generally decreases, B stock increases).
Now, over at Goldman, they recommend buying company C to a large number of clients based on their research, so it’s on the watch list. Company C is a small-cap, so this large inflow of buy orders can affect the price. Now, some of your folks inside Goldman might own the stock or might want to own it. Is it going to be a good look for those folks to purchase that stock a day before all those buy orders goes out? No, so that transaction would have to get approved (in this scenario unlikely). There are cases where someone might own the stock, and they go to compliance because they need to sell-off some of their portfolio, contrary to a recommendation to clients of the firm. It’s all good in many cases, it just has to get approved off the watch list.
Does that help?
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Yes, it’s clearer now.
Thanks for your help 