Personal trading rules for the investment staff of superannuation funds are largely unregulated in Australia. The general trend is for super funds to abide by the unwritten laws of common sense and good governance. But, asks CATHERINE JAMES, would that change if funds continue to grow at the rates they have been?

One of the United States’ largest pension funds, CalPERS, recently tried to introduce tougher guidelines for its staff around personal trading accounts. However, the pushback from staff has been so strong that even the Office of Administrative Law (OAL) in California has been called upon to step in. As first reported in Pension and Investment online, the Californian Public Employees’ Retirement System brought in new guidelines for its investment staff that sought to increase protocols around how staff were to check trades and put limits on how much they could trade on any one stock.

A staff member took the complaint to the OAL requesting the legislative authority to override CalPERS’ new guideline on the grounds the pension fund’s move went beyond its legal right. J.J. Jelincic, a real estate investment officer with the US$250 billion fund, filed documents filed with the OAL, the agency responsible for checking that administrative regulations proposed by California state agencies comply with the state’s Administrative Procedure Act, on the grounds the policy was an “underground regulation”. “The restrictions go well beyond the authority of CalPERS, those needed to protect CalPERS or industry standards,” Jelincic says in the documents dated April 4.

According to P&I, the new regulations “tightened the personal trading policy to prohibit employees from trading — without first getting approval — a security in their personal portfolios worth more than US$2,000 if CalPERS has traded or plans to trade that security within seven days. If approved, the trade can only be completed the same day approval is given.”

Jelincic contests in his application to OAL that the regulation “interferes with the efficient operation of the public securities market. This area of activity, relative to public markets, is within the jurisdiction of the federal Securities and Exchange Commission and the Commodity Futures Trading Commission. It imposes limits beyond the authority of CalPERS. “It purports to give CalPERS the authority to control the actions of any person acting as a fiduciary on behalf of any ‘Key Access Person’. It makes the private transactions of both employees and non–employees a public record. It requires the reporting of requested permissions even if transactions did not occur or had been denied.”

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