Can Management consultants trade stocks actively?

Question

Would MC firms implement any restrictions?

GoBruin · Answer

I don't have any info, but from what I've heard about MC's is that you'll be way too busy to actually trade. There's probably a lot of off site tiems and meetings so I don't know if you can really sit there and trade.

fall09 · Answer

Well,time might be an issue.I'm thinking from the angle of conflict of interest.

jb32 · Answer

Standard insider trading rules apply to all situations, why would MC be any different? I would not guess you are implying this, so there would not be any trading restrictions beyond what is enforced by the SEC.

sonibubu · Answer

Yeah trade stocks of non-client companies...sure.

But if you're telling your client they should buy a company, the client is STRONGLY leaning towards buying target company, and you're buying shares of that target company...then that's probably a conflict of interest problem.

jb32 · Answer

That's more than a conflict of interest. That's a white-collar Federal crime called insider trading. If you got caught, then you would go to jail and your career would be over.

refurb · Answer

How likely is it that a company would have a more restrictive "honor code" when it comes to this sort of thing?

RF

fatb · Answer

I don't think this is easily enforced.
I've known people trading their own companies' stocks on the open market outside of the official open windows.
The bottom line is, as long as the amount is small enough, it will not trigger any alarm and SEC will not be on to the person.

jb32 · Answer

So what's your point? It may not be easily enforced, but its still illegal. While you can't catch every person that steals a candy bar, and it would be cost prohibitive to try, it is still stealing. If you know information that is not available to the general public, i.e. any information your firm might have obtained in the course of its relationship, and you act on it, then you are guilty. It's that simple.

Some firms may have an 'honor code', but its highly unneccessary becuase no engagement is done on the honor system anymore. The MC firm signs a CA at the beginning of any relationship which prevents the firm or any of its employees from disclosing any kind of client information. So even if you don't trade on the info, but instead pass it along to someone else, then you can (and should) be fired and could end up in jail.

Is it worth losing your job for a couple thousand $'s?

Is it worth losing your job for a couple thousand $'s?

fatb · Answer

Sounds good to me, you can probably make a good ethic essay out of this.
If the practice is not up to your moral standard, don't do it.
What I mentioned was the truth, and the risk vs reward is up to the individual to decide.

msday · Answer

What do the mechanics look like? If the target company is large enough, and the person you pass the information along to is distant enough from you (i.e. not your relative), then is there some kind of Insider Trading Gestapo that comes around and checks everyone's accounts?

refurb · Answer

The reason I brought up the honor code is because I'm wondering if some companies restrict their employees from trading in ANY firm that does business with them, regardless if you have access to any relevant info.

I know my company has very strict guidelines about employee behavior. For example, you can't accept any gift from any supplier, no matter how insignificant.

RF

refurb · Answer

I'm sure Jb32 knows the name of the organization, but yes there is a body that monitors all trades, looking for suspicious activity. You'd be surprised what they can find out.

Think of it this way, if their computer system hits on a guy who bought $500K worth of shares of company X (never having owned any shares before) one week before a buyout is announced, then sells the shares the next week, all they need to do is start looking at emails, phones records and the such. It doesn't take long before they can figure out where the info came from.

It's almost a catch 22, to make it worth while, you need to trade on such a large scale that you'll almost certainly pop up on their radar screens.

RF

jb32 · Answer

I would venture to guess in a company like McKinsey or Bain that would be impossible with thousands of different clients, but I would bet the rules might limit you from trading in firms that you have personally interacted with.

Since we are on the topic of insider training, I would recommend that before you go to business school you should definitely read  Den of Thieves  and see the movie  Wall Street  in which Gordon Gecko is based on Ivan Boesky, who was one of the people caught in arguably the greatest insider trading scandal in US history.

BTW, its the SEC Enforcement Division's Office of Market Surveillance that monitors for insider trading.

refurb · Answer

JB32,

I'm always impressed with the depth of your business knowledge and how well read you are. You obviously know your stuff. I hope you're going to incorporate that somehow into your essays because I think it's one of your strengths.

RF

jb32 · Answer

Thanks, but I also have to give some credit to Wikipedia. You can find out just about anything on that website.

PatrickBateman · Answer

at my firm, it works as follows:

you  can  own client shares,  but ...

if you get staffed on a client, equity is off limits for a certain time frame.
if you get staffed on a client and you already own stock, you can not sell the stock for a certain time frame.

Paradosso · Answer

I second what PatrickBateman says, at least for where I'm working at.

You sign a (10+ pages) confidentiality agreement when you're hired.

There is a register maintained by every MC on which everyone who has access to specific information about a client is included. Your position in the register is updated monthly, listing confidential information you have access to. You get a monthly e-mail telling you your position and which clients you are involved with (obviously there's a time frame where the client is still listed though you are no longer staffed on it). You can't buy or sell stocks of those companies as long as you are associated with them in the register.

As someone said, it is fairly unforceable as long as you don't trade big time (but I would not do it either). The very thing I would be careful of is speaking about the client with people not on your team. At MCs, you don't have access to information regarding engagements you are not staffed on, so you should not speak about your client even with your colleagues. Let alone talking with friends outside of the company: you can be sure that information will end up to some competitor who can exploit it in the sales process. Or to a friend of a friend's wife who is a corporate lawyer. It's not uncommon to hear of people given the sack, ,or big clients lost, for things like those.

Maybe second only to expense account cheating in the arena of motives for abrupt firings in my line of work.

Can Management consultants trade stocks actively?

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