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Can Management consultants trade stocks actively?

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Senior Manager
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Can Management consultants trade stocks actively? [#permalink]

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New post 11 Sep 2008, 10:18
Would MC firms implement any restrictions?
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Re: Can Management consultants trade stocks actively? [#permalink]

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New post 11 Sep 2008, 10:30
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.
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Re: Can Management consultants trade stocks actively? [#permalink]

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New post 11 Sep 2008, 10:52
GoBruins wrote:
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.


Well,time might be an issue.I'm thinking from the angle of conflict of interest.
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Re: Can Management consultants trade stocks actively? [#permalink]

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New post 11 Sep 2008, 11:07
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.

Last edited by jb32 on 11 Sep 2008, 11:55, edited 1 time in total.
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Re: Can Management consultants trade stocks actively? [#permalink]

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New post 11 Sep 2008, 11:48
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.
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Re: Can Management consultants trade stocks actively? [#permalink]

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New post 11 Sep 2008, 11:56
sonibubu wrote:
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.

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.
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Re: Can Management consultants trade stocks actively? [#permalink]

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New post 11 Sep 2008, 12:31
jb32 wrote:
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.


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

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Re: Can Management consultants trade stocks actively? [#permalink]

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New post 11 Sep 2008, 12:37
jb32 wrote:
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.


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.
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Re: Can Management consultants trade stocks actively? [#permalink]

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New post 11 Sep 2008, 12:45
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?
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Re: Can Management consultants trade stocks actively? [#permalink]

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New post 11 Sep 2008, 12:56
jb32 wrote:
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?


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.
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Re: Can Management consultants trade stocks actively? [#permalink]

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New post 11 Sep 2008, 13:07
jb32 wrote:
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?


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?
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Re: Can Management consultants trade stocks actively? [#permalink]

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New post 11 Sep 2008, 13:40
jb32 wrote:
Some firms may have an 'honor code', but its highly unneccessary becuase no engagement is done on the honor system anymore.


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.

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Re: Can Management consultants trade stocks actively? [#permalink]

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New post 11 Sep 2008, 13:45
msday86 wrote:
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?


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.

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Re: Can Management consultants trade stocks actively? [#permalink]

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New post 11 Sep 2008, 14:29
refurb wrote:
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 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.
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Re: Can Management consultants trade stocks actively? [#permalink]

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New post 11 Sep 2008, 15:17
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
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Re: Can Management consultants trade stocks actively? [#permalink]

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New post 11 Sep 2008, 16:57
refurb wrote:
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


Thanks, but I also have to give some credit to Wikipedia. You can find out just about anything on that website.
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Re: Can Management consultants trade stocks actively? [#permalink]

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New post 11 Sep 2008, 18:12
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.
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Re: Can Management consultants trade stocks actively? [#permalink]

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New post 11 Sep 2008, 23:51
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.
Re: Can Management consultants trade stocks actively?   [#permalink] 11 Sep 2008, 23:51
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