The SEC proposed an amendment to the 1940 Act yesterday that would require all mutual fund and other investment advisors to adopt a code of ethics that would apply to all supervisors, portfolio managers and other key personnel.

One of the changes would require certain fund employees to pre-clear personal investments through private offerings or initial public offerings. And a fund’s chief compliance officer would be ultimately responsible for any violations of non-disclosure of holdings or recommendations, including those related to mutual funds run by the advisor or an affiliate.

"Advisors are fiduciaries that owe their clients a duty of undivided loyalty," a passage of the 59-page proposal reads. "The Commission has become concerned that the obligations attendant to this duty were lost on the growing number of advisors we see each month on our enforcement calendar."

These codes of ethics were among three major reforms the SEC proposed on Jan. 14 and which took the industry somewhat by storm (see "SEC Clamps Down on Fund Fees, Governance," MME 1/19/04).

Comments are due no later than March 15 either in hard copy, or via e-mail to:, with a subject line of Re: S7-04-04. Interested parties can also see the SEC’s outline of the key distinctions between the proposed rule (204A-1) and the existing rule (17j-1) here:

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