What is the main purpose of a restricted trading list?

The main purpose of a restricted trading list is to restrict trading of certain securities when there is material nonpublic information (MNPI) that could unfairly influence the market. Firms create this list to ensure compliance with insider trading regulations and to maintain the integrity of the market. When employees or associated persons of a firm possess MNPI about a company, it is crucial that they do not trade on that information or share it with others who may trade, as this could lead to unfair advantages and undermine market fairness.

By maintaining a restricted trading list, a firm can monitor and control who has access to sensitive information and manage trading activities accordingly. It acts as a preventive measure to avoid potential legal ramifications, reputational damage, and financial penalties associated with violations of insider trading laws. Overall, this practice demonstrates a firm's commitment to ethical trading standards and compliance with regulatory requirements.