Screening is used almost exclusively for restrictions imposed by client investment policies either in institutional separate accounts or in our managed accounts.
For clients whose investment policies follow values-based investment themes, including environmental, social governance concerns, Federated will exclude any security or securities expressly prohibited by the client within an institutional separate account. To ensure compliance with client investment policies and prevent prohibited securities from inclusion in the portfolio, Federated uses pre-trade compliance and trade execution systems. Through our trade order management system, we track sector and securities weightings and monitor a portfolio's structure and individual holdings. Federated's Compliance Department monitors post-trade reports from various investment and trading systems to identify exceptions and facilitate any necessary corrective action in order to adhere to the stated SRI/ESG investment limitations articulated in the institutional separate account guidelines. In addition, Federated's Audit Department conducts periodic audits to ensure investment management controls, including those related to guidance adherence are operating properly.
For managed account clients, on a quarterly basis, Federated portfolio management teams provide a current list of restrcited securities to Managed Account Operations. Managed Account Operations updates the Portfolio Accounting System as necessary. If a security is added to a class restriction list at the end of any given quarter and it is held in any client account that has a particular class restriction, the financial advisor on the account will be contacted to determine whether the security should be immediately sold from the client account or held and no further securities purchased. SMA operations runs reports periodically to monitor for restriction violations.