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Buysiders Increasingly Look To Audit Access To Private Info

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Investment firms are increasingly seeking to monitor their employees' access to confidential information from online systems that distribute private information to loan market participants.

Investment firms are increasingly seeking to monitor their employees' access to confidential information from online systems that distribute private information to loan market participants. Elliot Ganz, general counsel for the Loan Syndications and Trading Association, said firms' increased interest in monitoring their employees' access to private information comes at a time of increased emphasis on establishing procedures to prevent insider trading in the loan market.

Speaking at a seminar on the LSTA's principles governing the use of material non-public information last week, Ganz said online loan platforms, such as IntraLinks, are receiving an increasing number of requests for functionality that allows compliance officers to monitor their employees' access to private information. IntraLinks provides a workspace for the secure exchange of documents between loan market participants.

"It is becoming increasingly important to establish where people went [on sites]. It is demanded by the market," said Ganz. Andrew Fieweger, v.p. of product management at IntraLinks, said the company launched a service last October ­ Access Monitoring Service ­ that provides compliance officers with daily reports showing what kind of access to information their employees have on the site. "We have seen a tremendous increase in demand for this capability," said Fieweger. "In the last quarter we received twice the amount of interest as in the quarter beforehand."

Firms are also being asked to designate an individual to receive private information, even if the firm is on the public side. Agent banks are being more consistent in requiring each firm to have a person who can receive this private information in order to vote on amendments. Ganz said some smaller firms are struggling to do this in-house and are trying to outsource this function to law firms. He added he had heard anecdotally that many law firms do not want to risk taking responsibility for this because they do not want to be involved in making decisions on credit agreements. "It puts law firms in a difficult position. They are not credit people. They don't want to make decisions on amendments," said Ganz.

Jane Summers, counsel at Latham & Watkins, agreed law firms are resistant. "It is understandable outside counsel is reluctant to take on this role. These issues are fundamentally business decisions," she said. She added more sophisticated hedge funds are appointing individuals on the operations side to perform this role.

The LSTA published a statement of principles in October, which set out guidelines for the receipt, use and distribution of confidential information by loan market participants. The principles are designed to guide loan market participants that also trade public securities on policies and procedures relating to material non-public information (CIN, 10/20).

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