Carefully conceived personal trading restrictions and prohibitions (such as pre-clearance of personal trades and blackout periods) are some of the most valuable tools available to a hedge fund manager to detect and prevent personal trading fraud, including insider trading and front-running.  Such policies prove the adage that an ounce of prevention is worth a pound of cure.  Contrast such personal trading restrictions and prohibitions with the reporting obligations mandated by Rule 204A-1 under the Investment Advisers Act of 1940 (Advisers Act) which only require a firm to review its covered persons’ trades retroactively.  Once a trade has been effected, a firm has few remedial options other than breaking the trade (if it is discovered in time) or disciplining the covered person (potentially including requiring him or her to disgorge any profits).  More often than not, once a personal trading violation has occurred, the damage has been done.  As such, unless a hedge fund manager flatly prohibits all personal trading by its covered persons, it will need to adopt some personal trading restrictions and prohibitions to prevent personal trading fraud.  Unfortunately, the securities laws and rules (including Rule 204A-1) provide only limited guidance in this regard.  This is the second article in a three-part series on personal trading policies and procedures for hedge fund managers.  The first article in this series discussed general considerations for hedge fund managers in developing effective personal trading policies; the scope of persons that may be covered by such personal trading policies; and the reporting obligations imposed on registered hedge fund managers by Rule 204A-1.  See “Key Legal and Operational Considerations for Hedge Fund Managers in Establishing, Maintaining and Enforcing Effective Personal Trading Policies and Procedures (Part One of Three),” Hedge Fund Law Report, Vol. 5, No. 3 (Jan. 19, 2012).  This article discusses various personal trading restrictions and prohibitions, including limitations on the number of brokerage firms covered persons can use to effect personal trades; pre-clearance requirements for personal trades; blackout periods during which personal trades cannot be effected; holding periods applicable to securities owned by covered persons; and other types of personal trading restrictions and prohibitions.  The third article in this series will describe various solutions designed to facilitate monitoring of personal trading compliance by hedge fund managers.