OMERS

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PERSONAL TRADING POLICY IMPLEMENTING AN
AUTOMATED PLATFORMPublic Pension Financial
Forum (P2F2) 6th Annual ConferenceSacramento,
California
Nancy Ross VP, Compliance October 20, 2009
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Presentation Outline

• Background compliance function and the approach
  to new initiatives.
• Legal requirements insider trading, tipping and
  fiduciary duties
• Benchmarking best practices and recommendations
• Case study of OMERS personal trading controls
• The way we were identifying weaknesses
• Where we are improvements to date
• Where we plan to be next steps
• How it went automation hurdles

October 20, 2009
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OMERS Quick Facts The Plan

• Ontario Municipal Employees Retirement System
• Defined benefit pension plan
• Managed by OMERS Administration Corporation, a
  statutory non-share corporation
• Over 920 employers (municipal governments
  agencies including police, fire, ambulance,
  library, childrens aid, etc.)
• Over 390,000 members and over 106,000 receiving
  pensions and benefits

October 20, 2009
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OMERS Quick Facts Investments

• AuM gt 44 billion, current asset mix
  approximately
• lt 60 public managed internally, except some
  non-Canadian equities with external managers
• Canadian equities lt 14
• Foreign equities lt 21
• Fixed income lt 25
• gt 40 private managed by wholly owned
  investment entities
• Real estate gt15
• Infrastructure lt17
• Private equity lt 9

October 20, 2009
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OMERS Compliance Function

• Central Compliance function created in June 2006
• Now team of 6 reporting to Chief Legal Officer
• Areas of responsibility
• Legislative Compliance Program monitor and
  report quarterly to Board Audit Committee
• Regulatory Filings substantial shareholder
  reporting, AML/Anti-terrorism monitoring and
  reporting
• Policy Co-ordination draft and review policies,
  manage online library (Slide 13), communicate
  changes (Slide 14)
• Code of Conduct policy, training (Slide 15
  16)
• Personal Insider Trading policy, training,
  Restricted List management, personal trading
  monitoring
  (policy is available at http//www.omers.com/
  Assets/investments/Personal!26InsiderTradingP
  olicy.pdf )

October 20, 2009
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Implementing Compliance Initiatives

• Steps
• Research legal requirements and industry
  practices
• Establish policy
• Develop processes for monitoring
• Communicate to and train employees
• Implement and monitor
• Review results
• Update policy and processes as needed

October 20, 2009
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Legal Requirements

• US Federal Sentencing Guidelines Effective
  Compliance and Ethics Program Minimum
  Requirements (http//www.ussc.gov/2007guid/8b2_1.
  html)
• Standards and procedures to prevent and detect
  criminal conduct
• Knowledgeable Board that exercises reasonable
  oversight, and specific individuals assigned
  responsibility
• Reasonable efforts to exclude unsavoury
  individuals
• Periodically conduct ethics training and
  disseminate information to employees on standards
  and procedures
• Ensure program is followed, monitored, audited
  and evaluated, and has a whistle-blowing system
• Promote and enforce with incentives and
  discipline
• Remediation to prevent similar violations

October 20, 2009
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Personal Trading - Legal Principles

• Fiduciary Duty employees may not use non-public
  information or their position for personal
  benefit (i.e. front running, conflict of
  interest, broker preferences)
• Insider Trading and Tipping trading in
  securities of a public company on the basis of
  material non-public information about the
  company, or disclosing the information, except in
  the necessary course of business, is prohibited
  (US 1934 Act Rule 10b5-1 considered fraud to
  trade, or tip if in breach of a duty of
  confidence)
• material if known would reasonably be
  expected to significantly move the market (US
  caselaw viewed by a reasonable investor as
  having significantly altered the total mix of
  information made available)

October 20, 2009
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Personal Trading Policy

• Benchmarking of Internal Controls
• Policy and acknowledgements
• Disclosure and monitoring of trades and holdings
• Pre-clearance of trades
• Blackout periods
• IPO and private placement limits
• Institutional trades where held personally by PM
• Short term trading limits

October 20, 2009
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October 20, 2009
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Personal Trading Policy

• Purpose
• Protects individuals and the Fund by helping to
  prevent inadvertent violations
• Minimizes appearance of individuals profiting
  from knowledge gained through their position
• Demonstrates reasonable controls required to
  defend legal action if violation occurs

October 20, 2009
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Personal Trading Policy Application

• ACCESS PERSON
• Director/employee/consultant with
• Ability to influence investment decisions or
• Access to investment information
• Direct through systems, premises
• Proximity to those with access
• COVERED ACCOUNT
• Access Person has ability to influence trades
• May include accounts of family, associates,
  trusts
• Excludes managed accounts, exempt trade accounts

October 20, 2009
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(No Transcript)
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• Periodic newsletter (every 2-3 months)
• Summarizes policy changes and new compliance
  initiatives
• Red titles link to Policies and Procedures Library

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(No Transcript)
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(No Transcript)
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OMERS The Way We Were

• Pre-2007 program
• Investment compliance assigned to one individual
  within the investment group
• Written policy requiring
• Reporting of trades as transacted
• Annual holdings disclosure and acknowledgement
• Trade pre-clearance through an online system
• Monitored by external agent

October 20, 2009
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OMERS The Way We Were (contd)

• Problems
• Online system
• Security (not issuer) matched
• Securities set up by users
• Manual institutional data entry
• No verification processes
• Control List widely accessible
• Reporting of trades irregular
• Monitoring limited, not timely

October 20, 2009
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OMERS Where We Are

• Initial Improvements
• Policy rewritten more guidance, stronger
  controls
• Compliance responsibility for
• Maintaining Restricted List, processes
• Data entry with daily verification
• Account statements directly from brokers
• Automated solutions for institutional
  pre-clearance and monitoring to limit Restricted
  List access
• Monitoring follow up

October 20, 2009
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OMERS Where We Are

• Recent Implementation
• Online trade pre-clearance system with security
  master feed operating at the issuer level
• Online certification of accounts held
• Restricted List populated from trading system in
  real time plus manual capability for private
  deals, isolated instances
• Rules for pre-clearance configurable for
  different employee groups (permits firewalls)

October 20, 2009
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OMERS Where We Plan to Be

• Next Steps
• Daily feed of trade confirmations from brokers
• Daily reports of previous days trade violations
• Failure to pre-clear, trade after pre-clearance
  expired or denied, short term trade, etc.
• Periodic reports analyzing data for other trends
• Front-running, high closing, unusual trading
  patterns, excessive pre-clearing, etc.
• Other certifications
• Outside activities, gift entertainment

October 20, 2009
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OMERS How it Went

• Automation Hurdles
• Accurate issuer/security data essential
• Single point of entry, up-to-date
• Product choice externally hosted
• Concern is security of trading information
• Product choice integrated with trading system
• Concern is security of internal systems
• RFP process limits to big players
• Brokerage feeds require cooperation
• 13 in US, none in Canada yet

October 20, 2009
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• QUESTIONS ?

October 20, 2009