Final answer:
The purpose of the rules on personal account dealing is to prevent conflicts of interest, insider trading, and unethical behaviour while ensuring transparency, fairness, and maintaining the reputation of the firm.
Step-by-step explanation:
The purpose of the rules on personal account dealing is to provide guidelines and restrictions for employees of the firm when it comes to trading and investing in personal accounts. These rules aim to prevent conflicts of interest, insider trading, and unethical behaviour that may harm the firm or its clients. By implementing these rules, the firm ensures transparency, and fairness, and maintains the trust of its employees and stakeholders.
One of the primary reasons for having these rules is to avoid conflicts of interest. When employees have personal financial interests that may conflict with the firm's interests, it can compromise their objectivity and decision-making. For example, an employee with inside knowledge of a forthcoming deal may use that information to make personal trades, which is illegal and unethical. By setting rules on personal account dealing, the firm prohibits such actions and protects the integrity of its operations.
Another important reason for having these rules is to prevent insider trading. Insider trading involves trading securities based on material non-public information. It is illegal and can lead to severe penalties, including imprisonment. By imposing rules on personal account dealings, the firm ensures that employees are aware of their responsibilities to refrain from trading based on non-public information. This helps maintain a fair and level playing field for all market participants.
Moreover, the rules on personal account dealing help maintain the reputation and trust of the firm. Clients and stakeholders expect the firm's employees to act ethically and professionally. By having these rules in place, the firm demonstrates its commitment to ethical conduct and compliance with legal requirements. This, in turn, enhances the firm's reputation, builds trust with clients, and attracts potential investors.
In conclusion, the purpose of the rules on personal account dealing is to prevent conflicts of interest, insider trading, and unethical behavior, while ensuring transparency, fairness, and maintaining the reputation of the firm. These rules protect the interests of the firm, its clients, and stakeholders, and promote a culture of trust and compliance.