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Calpers Plans Front-Running, Personal Stock-Trading Restrictions

Calpers Plans Front-Running
The California Public Employees' Retirement System (Calpers) is shown in Sacramento. Photographer: Ken James/Bloomberg

The California Public Employees’ Retirement System, the largest U.S. public pension fund, is considering a proposal to restrict personal stock trades by employees as a way to avoid conflicts of interest.

The proposed rules would require about 700 Calpers employees and their spouses and domestic partners to get approval before trading a stock for their personal accounts. They would prohibit trades at least one day before and after the fund’s transactions with the same company. They would also forbid so-called front running -- capitalizing on advance knowledge that the fund is to going to take or sell a position by buying shares beforehand.

Calpers, with $225 billion in assets, considered similar restrictions in 2008. The move foundered after resistance by employees over questions on implementation and concerns that such rules needed to be done through a formal state regulation. This time, the fund said it reviewed the personal trading policies of other pension funds and financial-services firms and met with staff and labor unions to develop the proposal.

“The policy is designed to help prevent insider trading and front running, avoid conflicts of interest and help ensure that Calpers’ employees are complying with federal securities laws and meeting their fiduciary duty to Calpers,” the fund’s chief risk officer, Larry Jensen, said in a report to the board.

The regulation would require employees to use a Calpers-designated brokerage for their personal trades and hold securities for at least 30 days. It would bar workers from trading in stocks that the fund is prohibited from owning, and from making personal investments based on confidential information learned by virtue of their employment.

Spouses, Partners

Spouses and domestic partners who work as traders or brokers at a private firm would be exempted from the rules when those trades are part of their jobs.

Calpers employees are already subject to federal securities rules against insider trading and state laws that prohibits a government employee from using work information for personal gain.

The fund’s Benefits and Program Administration Committee will consider the proposal Oct. 18. If approved, the plan would be submitted to the full board.

The pension plan was rocked by a pay-to-play scandal last year unrelated to stock trades in which a former board member who became a paid middleman was accused of attempting to trade personal favors to the then-chief executive officer of Calpers in return for business for his clients.

-- Editors: Pete Young, Ted Bunker

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