ethics+summary.pdf

7/27/2019 Ethics+summary.pdf

1/10

Ethics

Brief summary of all issues identified

in the application examples


2/10

I Professionalism

A Knowledge of the

LawB Independence and

objectivity

C Misrepresentation

D Misconduct

II Integrity of CapitalMarkets

A Material Nonpublic

informationB Market Manipulation

III Duties to Clients

A Loyalty, Prudence

and CareB Fair Dealing

C Suitability

D PerformancePresentation

Preservation ofconfidentiality

IV Duties to Employers

A Loyalty

B AdditionalCompensationArrangements

C Responsibilities ofSupervisors

V Investment Analysis,recommendations and

actions

Diligence and

reasonable basisB Communication with

clients and prospectiveclients

C Record keeping

VI Conflicts of interest

A Disclosure of

ConflictsB Priority of

Transactions

C Referral Fees

VII Responsibilities as aCFA Institute Member

or candidate

A Conduct as members

and Candidates in theCFA program

B Reference to CFAInstitute, the CFADesignation and theCFA Program

A: If notified ofviolations, report to supervisor/compliance dept or seek independent legal opinion

If firm does not remedy a violation, dissociate and seek legal advice. This may result in the need to seek other

employment.

Abide by the more strict rules, especially important in developing markets

Be aware of how religious laws and requirements may impact on investment strategies (e.g. Islamic finance)

B: Use judgement when accepting travel/accommodation. If modest, ok. Best practice is to pay for all expenses andtravel if practical.

Cannot promise to provide a favourable recommendation.

Recommendations must be solely on a companys quantitative and qualitative fundamentals and must not be impacted

by any other potential business the firm wants to do with that client. Nor must opinions be influenced by sales targets or

opinions of a boss.

Substantial gifts from a related party (i.e. brokerage house) should not be accepted.Gifts from clients must be disclosed to employer but supervisor should monitor in case of favouritism.

Be wary of conflicts when attending sponsored events such as conferences and ensure all basic expenses paid for

Fees for writing research reports must not be linked to outcome of report or subsequent investment levels

Funds must not be promoted to clients on the basis ofcommission to the advisors.

Research should not be limited to historical norms i.e. Should consider that the house market might fall when

evaluating MBSs.


3/10


4/10

I Professionalism

A Knowledge of the


objectivity

C Misrepresentation

D Misconduct


A Material Non-public



A Loyalty, Prudence


C Suitability




A Loyalty




actions

A Diligence and



C Record keeping


A Disclosure of


Transactions

C Referral Fees


or candidate




A: Communicating material non-public information, or trading on the basis of such information is a breach (includes

overheard info and information discovered socially, even if the subsequent share price movement is adverse).

Firms should put in place barriers to prevent flow between e.g. Corporate finance and sales depts.

Trading on pre-publication recommendations (printed, TV, online) that move the market is also a breach. Also a breach

is a broker placing his own trades before a trade that he knows will move the market.

ma -group orum n orma on s no pu c.

If the source is unreliable (speculation from an unlinked professional), the info is not considered materialThe mosaic theory allows conclusions to be drawn from e.g. discussions with suppliers and retailers about a company

B: No artificial company promotion in the guise of independent analysis

No false trading to manipulate the stock price (i.e. Trading through a network of accounts to inflate bid prices or

generate an illusion of volume)

No spreading ofrumours to create volatility or price movementsLiquidity pumping strategies are a breach unless disclosed (lower commissions on unusually high trade volumes)

Do not exaggerate an earnings estimate to fuel a quick gain or force out information from the company

Manipulating ratings on structured products for short term gain damages the firm, investors and the capital markets


5/10

I Professionalism

A Knowledge of the


objectivity

C Misrepresentation

D Misconduct





A Loyalty, Prudence


C Suitability




A Loyalty




actions

A Diligence and



C Record keeping


A Disclosure of


Transactions

C Referral Fees


or candidate




A: Investment managers for pension plans must act in interest of plan, not sponsoring company (e.g. Purchasing co stock

to thwart hostile takeover)

Client brokerage must benefit clients through best execution or investment decision-making related services but client

can direct brokerage providing they provide a written statement. Advisors should not be swayed towards brokers by

favourable personal transactions or entertainment.

xcess ve ra ng o earn comm ss on-re a e ees s a reac .

Iffamily accounts are regular fee-paying accounts, allocation of shares should be proportionate with all other clientsIf hired as an expert witness by a law firm, must be impartial

Advisors have a duty of loyalty to clients, investment managers must follow IPS of fund, not needs of fund investors

B: No early disclosure of pending reports or opinions to selected clients, although greater attention to higher fee clients

is ok

Orders must be executed on a fair basis across accounts and disclosure of an unfair policy does not make it ok.In oversubscribed IPOs, do not take personal shares

If there is a delay between trade and allocation, be systematic across accounts (pro-rata)

Pro-rata trade allocation can be amended to satisfy minimum lot requirements


6/10

I Professionalism

A Knowledge of the


objectivity

C Misrepresentation

D Misconduct





A Loyalty, Prudence


C Suitability




A Loyalty




actions

A Diligence and



C Record keeping


A Disclosure of


Transactions

C Referral Fees


or candidate




C: Assigning high risk investments to a low risk tolerance client likely to be a breach know circumstances and objectives

Consider an investment in the context ofwhole portfolio (covered call).

Update IPS if circumstances and risk tolerance change amend asset allocation.

Stick to investment mandate e.g. Income v zero div or liquidity v lock in period.

If choosing a sub-manager do not base decision on fee levels alone.

o no ma e ec s ons or s or erm remunera on ec s ons over c en s ong erm o ec ves.

Investment advisors should not be simple sales agents for hedge funds, must consider suitability.

D: Do not pick one funds one year return and present as an average expected return.

No false claims ofGIPS compliance.

Any past performance from a previous employer should be disclosed as such.

Simulated returns must be clearly signposted as such.

Composite returns must be fairly calculated no inclusion/exclusion with purpose of boosting results.

E: No divulging ofclient information to third parties, even if potential donors.

Check with supervisor, compliance dept and legal council if a client suspected ofwrongdoings and consider resigning as

asset manager.


7/10


8/10


9/10


10/10

I Professionalism

A Knowledge of the


objectivity

C Misrepresentation

D Misconduct





A Loyalty, Prudence


C Suitability


E Preservation ofconfidentiality


A Loyalty




actions

A Diligence and



C Record keeping


A Disclosure of


Transactions

C Referral Fees


or candidate




A:No passing on or accepting information on what will appear inexaminations.

No taking ofwritten information into the exam room.

No writing after the exam ends.

No revealing of content examined or omitted in examinations, and no discussion of specific question detail

Graders cannot reveal any information on the exam material

o no use vo un eer pos on n ns u e o ene onese or c en s

Do not infer special advantage to clients of being involved in Institute relatedcommittees

B: Ok to state passed exams on first attempt, not ok to imply superior ability. Factual statements ok.

Can only use CFA designation if keep Prof Conduct Statement up to date and pay fees. Option to apply for retired

status and keep designation.

CFA logo cannot be incorporated into company logo. Can only be used on business card or letterhead of individual

member.Order of designations on business card does not matter.

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