"A Manager should establish a comprehensive and integrated compliance and business practices framework that is supported by adequate resources."

"The goal of the framework is to provide guidance to the Manager and its personnel in respect of ethical, regulatory compliance and conflict of interest situations ”

PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS Best Practices for the Hedge Fund Industry, April, 2008

 

Compliance Checks

Obviously it is an obligation of a fund manager to ensure that the funds do not violate any of the investment restrictions defined in the funds’ offering documents, or mandated by regulation or other agreements. These may be investment advisory agreements, prime brokerage agreements or derivatives counterparty agreements.

It is much easier to ensure compliance with any restrictions or regulations by having the system perform an automatic check before each trade is made, and at the end of the day. The system allows the manager to set up the rules for each portfolio, and to determine the severity of a potential violation.

The system can also be set up to provide a warning before a rule is violated. For example, if a fund has a 10% maximum position size, the system can provide a warning when a position reaches 9% and prevent a trade from being entered if it will increase the weight beyond 10%. If desired, the system can allow any violations to be overridden.