Fidelity Toughens Policy on Employees’ Trading

Fidelity Investments is taking new steps to restrict personal trading by employees to counter an impression of a freewheeling culture among some of its fund managers.

Fidelity, which already has on its books some of the toughest such language in the business, said it’s adding to its “code of ethics” new provisions that discourage “excessive” trading and will also enact a new rule that bans employees from “short-selling”--or making bets against securities--in their personal accounts. The changes will go into effect in January.

“Fidelity is slowly but surely eliminating all the potential conflicts that any of its fund managers could encounter,” said David O’Leary, president of Alpha Equity Research Inc. in Portsmouth, N.H., and a former Fidelity institutional salesman.

The No. 1 U.S. mutual fund group, with $476.5 billion in assets, said the implementation of new rules has nothing to do with any recent personal trading issues, and are simply additions to what are already “stringent” regulations.

However, personal trading by Fidelity fund managers became an issue early this year when securities regulators were alerted about the trading in a personal account of Jeff Vinik, former manager of Fidelity’s flagship Magellan Fund. No wrongdoing was alleged.

Fidelity’s already stringent personal trading rules require fund managers to clear all equity purchases with the firm’s trading group, which can prohibit investments if they may cause fluctuations in securities held by its funds. All personal investments must be reported monthly.

Fidelity’s actions are significant because of its leadership role in the mutual fund industry, as many other fund groups often take their cue from Fidelity.

More companies don’t adopt an outright ban because such a policy would give portfolio managers second thoughts about running a mutual fund if they couldn’t make trades for their own account, said Joseph Barri, senior partner at the law firm Hale and Dorr in Boston.

Fidelity’s code of ethics also includes provisions that prohibit managers from buying or selling stocks in their personal accounts for seven days before or after their fund bought or sold, the company said. If they hold a stock for fewer than 60 days, they must give back to the firm any profits they reap.