The Securities and Exchange Commission has cleared the way for investment advisers to trade securities simultaneously for their own accounts and those of clients.

Such trades won't be deemed a breach of fiduciary duty provided the investment adviser takes steps to ensure that clients are treated fairly and are apprised of the practice, the SEC said in a little-noticed letter dated Sept. 5. The five-page letter outlined the required steps in detail.

The decision addresses "a vexing problem" for mutual fund companies, including those affiliated with banks, according to Jay Baris, a partner with the law firm of Kramer, Levin, Naftalis, Nessen, Kamin & Frankel in New York.

Investment advisers are obligated by law to seek the best possible execution of trades for their clients. But restrictions on joint transactions among affiliates have forced them to keep trades separate - and to choose which trades to place first.

Eric Markus, a lawyer with Wilmer, Cutler & Pickering in Washington who sought the no-action letter, said the ruling is significant because it provides a way for investment advisers to include their firms' own money in an aggregated order.

Without this option, investment advisers who traded in the same security for themselves and a client and executed their own transaction first faced scrutiny for front-running, said Mr. Markus, who obtained the ruling on behalf of SMC Capital Inc.

The firm, based in Louisville, manages $86 million in hedge funds, employee benefit plans, and other investments for institutional clients. It also serves as subadviser to a mutual fund run by Shelby Country Trust Bank, Shelbyville, Ky., according to Nelson Publications Inc.

Banks frequently use the same money managers to handle mutual funds, trust accounts, and employee benefit plans. Though the managers might trade in the same securities for all these accounts, they have generally had to keep the trades separate.

Bunching trades has some clear benefits for investors, Mr. Baris said. "If you place a bigger trade, you might get a better price."

While banks are exempt from the SEC's definition of investment adviser, Mr. Baris said it is likely they would have to heed the SEC's guidelines if they want to aggregate securities trades involving their proprietary mutual funds.

That's because bank-managed mutual funds are subject to the Investment Company Act of 1940 and its Section 17(d), which governs joint transactions among affiliates.

Mr. Baris emphasized that the ruling doesn't give investment advisers free rein. Portfolio managers must allocate trades equitably among all clients or face disciplinary action under the joint transaction rule. And personal trading by portfolio managers is strictly governed by the SEC's code of ethics.

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