Which transactions require pre-clearance according to the Code?

Pre-clearance of transactions is a critical component of compliance in many investment advisory firms, particularly concerning potential conflicts of interest and the safeguarding of clients' interests. The requirement for pre-clearance typically applies to transactions that could pose a greater risk of insider trading or a conflict of interest for the adviser or their staff.

In this context, transactions involving IPOs (initial public offerings) and private placements are flagged for pre-clearance because they often involve new securities that may be highly sensitive to market movements or insider information. Individuals associated with an investment adviser may be privy to non-public information that could influence the value of these securities. Therefore, requiring pre-clearance for these transactions helps to mitigate risks associated with potential misconduct and ensures compliance with regulatory requirements, safeguarding both the firm and its clients.

In contrast, while private transactions might require some level of oversight, not all private transactions warrant the same degree of scrutiny as IPOs and private placements. Investment in mutual funds generally does not require pre-clearance due to their structured nature and regulatory oversight. Secondary market sales are typically considered less risky in terms of potential conflicts of interest and do not typically necessitate pre-clearance.