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- 1. CFA Code of Ethics 1
- 2. CFA Code of Ethics I: Professionalism II: Integrity of Capital Markets III: Duties to Clients IV: Duties to Employers V: Investment Analysis, Recommendations, Actions VI: Conflicts of Interest VII: Charterholder / Candidate Responsibilities 2
- 3. I: Professionalism I.A.: Knowledge of the Law I.B.: Independence and Objectivity I.C.: Misrepresentation I.D.: Misconduct 3
- 4. I: Professionalism I.A.: Knowledge of the Law • Understand AND COMPLY with all applicable laws • Includes licensing agencies, professional associations, etc. • Includes CFA Code • May not KNOWINGLY participate in violations • Reasonable grounds to believe = knowing • Based on peer opinions 4
- 5. I: Professionalism I.A.: Knowledge of the Law • Intermediate steps to attempt to stop – Notify employer – Confront the person directly – Gov’t reporting not req’d by code but may be by law • Must dissociate from violator/violations – Remove name • NOT required to be a legal or compliance expert 5
- 6. I: Professionalism I.A.: Knowledge of the Law I.B.: Independence and Objectivity I.C.: Misrepresentation I.D.: Misconduct 6
- 7. I: Professionalism I.B.: Independence and Objectivity • Consideration – is the consideration reasonably expected to compromise? • Cause or be PERCEIVED to cause • Gift from client? disclose to employer • Distinguish facts from opinions • Use firewalls in firms with conflicted depts 7
- 8. I: Professionalism I.A.: Knowledge of the Law I.B.: Independence and Objectivity I.C.: Misrepresentation I.D.: Misconduct 8
- 9. I: Professionalism I.C.: Misrepresentation • Related to investment analysis, recommendations, actions – Or other professional activities • Can be a misleading statement or omission of fact • Includes qualifications, firm’s services, performance record • You cannot guarantee returns • Cannot plagiarize, must cite sources • Authorization req’d to use spreadsheets, algorithms 9
- 10. I: Professionalism I.A.: Knowledge of the Law I.B.: Independence and Objectivity I.C.: Misrepresentation I.D.: Misconduct 10
- 11. I: Professionalism I.D.: Misconduct • Dishonesty, fraud, deceit • Act that reflects adversely on professional reputation, integrity, competence • Bankruptcy is acceptable unless fraudulent or deceitful • Examples – Abusing alcohol during business hours – Abusing the CFA Institute for vengeance to settle a personal score 11
- 12. CFA Code of Ethics I: Professionalism I.A.: Knowledge of the Law I.B.: Independence and Objectivity I.C.: Misrepresentation I.D.: Misconduct II: Integrity of Capital Markets III: Duties to Clients IV: Duties to Employers V: Investment Analysis, Recommendations, Actions VI: Conflicts of Interest VII: Charterholder / Candidate Responsibilities 12
- 13. CFA Code of Ethics I: Professionalism II: Integrity of Capital Markets III: Duties to Clients IV: Duties to Employers V: Investment Analysis, Recommendations, Actions VI: Conflicts of Interest VII: Charterholder / Candidate Responsibilities 13
- 14. II: Integrity of Capital Markets II.A. Material Non-Public Information II.B. Market Manipulation 14
- 15. II: Integrity of Capital Markets II.A. Material Non-Public Information • Do not act on it • Material if a reasonable investor would want to know it • Reliability of the source affects materiality • Beware of selectively disclosed info • Can construct a mosaic • Encourage disclosure • Use firewalls when necessary 15
- 16. II: Integrity of Capital Markets II.A. Material Non-Public Information II.B. Market Manipulation 16
- 17. II: Integrity of Capital Markets II.B. Market Manipulation • No practice that manipulates price or volume with the intent to mislead • Could be through transactions or spreading rumours • Includes cornering a market • Can pursue legitimate trading strategies that exploit market power, information, other inefficiencies 17
- 18. CFA Code of Ethics I: Professionalism II: Integrity of Capital Markets II.A. Material Non-Public Information II.B. Market Manipulation III: Duties to Clients IV: Duties to Employers V: Investment Analysis, Recommendations, Actions VI: Conflicts of Interest VII: Charterholder / Candidate Responsibilities 18
- 19. CFA Code of Ethics I: Professionalism II: Integrity of Capital Markets III: Duties to Clients IV: Duties to Employers V: Investment Analysis, Recommendations, Actions VI: Conflicts of Interest VII: Charterholder / Candidate Responsibilities 19
- 20. III: Duties to Clients III.A.: Loyalty, Prudence, and Care III.B.: Fair Dealing III.C.: Suitability III.D.: Performance Presentation III.E.: Confidentiality 20
- 21. III: Duties to Clients III.A.: Loyalty, Prudence, and Care • Client interests before employer or self • Prudence=discretion, caution, care, skill • Comply with legally imposed fiduciary responsibility • Determine identity of client • Avoid real and potential conflicts of interest 21
- 22. III: Duties to Clients III.A.: Loyalty, Prudence, and Care • Ensure client objectives are realistic & suitable • Judge investments in portfolio context – Prudent expert not prudent man rule • Informed responsible proxy voting • Direct the brokerage for client’s best interest 22
- 23. III: Duties to Clients III.A.: Loyalty, Prudence, and Care • Disclose actual and potential conflicts • Disclose all forms of compensation • Keep client info confidential • Seek best execution(CI) • Use soft dollars for things that benefit clients 23
- 24. III: Duties to Clients III.A.: Loyalty, Prudence, and Care III.B.: Fair Dealing III.C.: Suitability III.D.: Performance Presentation III.E.: Confidentiality 24
- 25. III: Duties to Clients III.B.: Fair Dealing • No favouritism • Fairly does not mean equally – Client needs vary – Service levels vary • Varying service levels should not disadvantage clients • All service levels available to all 25
- 26. III: Duties to Clients III.B.: Fair Dealing • Investment recommendations – Give clients a fair opportunity to act – Have a system to prevent selective discriminatory disclosure – If client order is contrary to current firm recommendation – notify them 26
- 27. III: Duties to Clients III.B.: Fair Dealing • Investment actions – Prorate allocation of oversubscribed issues – No personal participation till client purchases satisfied – Have & disclose written allocation procedures 27
- 28. III: Duties to Clients III.A.: Loyalty, Prudence, and Care III.B.: Fair Dealing III.C.: Suitability III.D.: Performance Presentation III.E.: Confidentiality 28
- 29. III: Duties to Clients III.C.: Suitability For Individual Accounts: • Reasonable check of client experience, risk & return objectives, financial constraints • Update client profile regularly, at least annually • Ensure investments match profile • Judge suitability in context of total portfolio • Directed trades: notify client of any suitability concerns 29
- 30. III: Duties to Clients III.C.: Suitability For Individual Accounts: • Suitability requires an IPS that incorporates: – Risk tolerance, Return requirements – Time horizon, Liquidity needs – Tax concerns, Legal and regulatory issues – Unique issues – Roles, Review schedule(Updated the IPS in a timely bases) • Not responsible for info withheld by client 30
- 31. • For pools • -respect stated strategy and style(mandate) • - respect pool constrains 31
- 32. III: Duties to Clients III.A.: Loyalty, Prudence, and Care III.B.: Fair Dealing III.C.: Suitability III.D.: Performance Presentation III.E.: Confidentiality 32
- 33. III: Duties to Clients III.D.: Performance Presentation • Fair, accurate, complete • GIPS encouraged but not req’d • Tailored to audience knowledge, sophistication • Use composites, not sample accounts • Include terminated accounts -“survivor bias” • Maintain data files to back up performance 33
- 34. III: Duties to Clients III.A.: Loyalty, Prudence, and Care III.B.: Fair Dealing III.C.: Suitability III.D.: Performance Presentation III.E.: Confidentiality 34
- 35. III: Duties to Clients III.E.: preservation of Confidentiality • For current, former, prospective clients unless: – Req’d by law – Permitted by client or prospect – For CFA Professional Conduct Program investigation 35
- 36. CFA Code of Ethics I: Professionalism II: Integrity of Capital Markets III: Duties to Clients III.A.: Loyalty, Prudence, and Care III.B.: Fair Dealing III.C.: Suitability III.D.: Performance Presentation III.E.: Confidentiality IV: Duties to Employers V: Investment Analysis, Recommendations, Actions VI: Conflicts of Interest VII: Charterholder / Candidate Responsibilities 36
- 37. CFA Code of Ethics I: Professionalism II: Integrity of Capital Markets III: Duties to Clients IV: Duties to Employers V: Investment Analysis, Recommendations, Actions VI: Conflicts of Interest VII: Charterholder / Candidate Responsibilities 37
- 38. IV: Duties to Employers IV.A.: Loyalty IV.B.: Additional Compensation IV.C.: Responsibility of Supervisors 38
- 39. IV: Duties to Employers IV.A.: Loyalty 1.Don’t deprive employer of your skills, abilities 2.Don’t divulge confidential information 3.Don’t cause harm to employer 4.Need NOT put employer above family/ personal responsibilities 1. Should dialogue with employer on conflict 2. Assumes employer will honour its duty to employee 5.Market and client obligations outrank employers 1. Can copy employer records if intent is clearly to protect clients or market integrity 39
- 40. IV: Duties to Employers IV.A.: Loyalty Independent Practice • Abstain from competing with employer • Notify employer of types of service, duration, compensation • Don’t render independent service till employer consents • Excludes preparing for independent practice • No stealing or misusing company information • No client solicitation before leaving • Once you leave, skills/ experience developed at the firm are no longer confidential • Knowledge of client names is not confidential 40
- 41. IV: Duties to Employers IV.A.: Loyalty Are you an employee? • Dictated by degree of employer control – Control of hours worked, location – Provision of facilities, (equipment, place) – Reimbursement of expenses – Number of other clients you have – Offering your services to others – Independent contractor relationship governed to written and oral agreement 41
- 42. IV: Duties to Employers IV.A.: Loyalty IV.B.: Additional Compensation IV.C.: Responsibility of Supervisors 42
- 43. IV: Duties to Employers IV.B.: Additional Compensation • Nothing that creates a conflict of interest with employer • Unless written consent from all parties 43
- 44. IV: Duties to Employers IV.A.: Loyalty IV.B.: Additional Compensation IV.C.: Responsibility of Supervisors 44
- 45. IV: Duties to Employers IV.C.: Responsibility of Supervisors • Reasonable effort to detect/ prevent violators • Even if employee is not a CFA charterholder • Delegating supervision doesn’t relieve you of duty • E.g. implement and review adherence to written compliance procedures • Promptly respond to known violation 45
- 46. CFA Code of Ethics I: Professionalism II: Integrity of Capital Markets III: Duties to Clients IV: Duties to Employers IV.A.: Loyalty IV.B.: Additional Compensation IV.C.: Responsibility of Supervisors V: Investment Analysis, Recommendations, Actions VI: Conflicts of Interest VII: Charterholder / Candidate Responsibilities 46
- 47. CFA Code of Ethics I: Professionalism II: Integrity of Capital Markets III: Duties to Clients IV: Duties to Employers V: Investment Analysis, Recommendations, Actions VI: Conflicts of Interest VII: Charterholder / Candidate Responsibilities 47
- 48. V: Investment Analysis, Recommendations, Action V.A.: Diligence & Reasonable Basis V.B.: Communications w/Clients & Prospects V.C.: Record retention 48
- 49. V :Investment Analysis, Recommendations, Action V.A.: Diligence & reasonable basis • Diligence, independence, thoroughness • Basis supported by research, investigation • Depends on investment philosophy, role • 2nd, 3rd party research – Reasonable effort to ensure it’s sound – Review assumptions, judge rigor, recency, objectivity 49
- 50. V: Investment Analysis, Recommendations, Action V.A.: Diligence & reasonable basis Group Decision-Making • Can disagree but still be named in group if you feel there is reasonable basis • But document your difference with the team • Firm should establish review process to judge basis 50
- 51. V: Investment Analysis, Recommendations, Action V.A.: Diligence & Reasonable Basis V.B.: Communications w/Clients & Prospects V.C.: Record retention 51
- 52. V: Investment Analysis, Recommendations, Action V.B.: Communications w/Clients & Prospects 1.Disclose format & principles of investment process,Promptly disclose changes 2.Use reasonable judgment in Identify important factors in an investment, communicate those factors in communication with clients 3.Distinguish between fact and opinion 52
- 53. V: Investment Analysis, Recommendations, Action V.A.: Diligence & Reasonable Basis V.B.: Communications w/Clients & Prospects V.C.: Record retention 53
- 54. V: Investment Analysis, Recommendations, Action V.C.: Record retention • To support analysis, recommendations, actions, other investment-related communications with clients & prospects • 7 years retention recommended 54
- 55. CFA Code of Ethics I: Professionalism II: Integrity of Capital Markets III: Duties to Clients IV: Duties to Employers V: Investment Analysis, Recommendations, Actions V.A.: Diligence & Reasonable Basis V.B.: Communications w/Clients & Prospects V.C.: Record Retention VI: Conflicts of Interest VII: Charterholder / Candidate Responsibilities 55
- 56. CFA Code of Ethics I: Professionalism II: Integrity of Capital Markets III: Duties to Clients IV: Duties to Employers V: Investment Analysis, Recommendations, Actions VI: Conflicts of Interest VII: Charterholder / Candidate Responsibilities 56
- 57. VI: Conflicts of Interest VI.A.: Disclosure VI.B.: Priority of Transactions VI.C.: Referral Fees 57
- 58. VI: Conflicts of Interest VI.A.: Disclosure VI.B.: Priority of Transactions VI.C.: Referral Fees 58
- 59. VI: Conflicts of Interest VI.A.: Disclosure • If it could reasonably be expected to impair independence or objectivity • Or interfere with duty to clients, prospects, employer • Prominent, plain language, relevant information • Best practice: avoid, otherwise disclose • Actual or potential conflict • E.g. recommending stocks you own, friend’s company 59
- 60. VI: Conflicts of Interest VI.A.: Disclosure Director conflicts • Has two conflicted clients • May get stock as compensation • May have material non-public information 60
- 61. VI: Conflicts of Interest VI.A.: Disclosure • Let employer avoid embarrassing/costly ethical/legal issues • Employers could specifically guide on major issues • Should disclose short term performance criteria, commissions, incentive fees, performance fees, referral fees 61
- 62. VI: Conflicts of Interest VI.A.: Disclosure VI.B.: Priority of Transactions VI.C.: Referral Fees 62
- 63. VI: Conflicts of Interest VI.B.: Priority of Transactions • Clients and employers before self • Co-investing is often ok; some clients require it • Covers anyone who knows of potential pending transactions • Firm should establish and communicate policies 63
- 64. VI: Conflicts of Interest VI.A.: Disclosure VI.B.: Priority of Transactions VI.C.: Referral Fees 64
- 65. VI: Conflicts of Interest VI.C.: Referral Fees • Disclose to employer, client, prospect • Any compensation received from or paid to others • For recommendation of service or product • Before agreement to do business • Disclose how the fee is structured • Disclose estimated dollar value 65
- 66. CFA Code of Ethics I: Professionalism II: Integrity of Capital Markets III: Duties to Clients IV: Duties to Employers V: Investment Analysis, Recommendations, Actions VI: Conflicts of Interest VI.A.: Disclosure VI.B.: Priority of Transactions VI.C.: Referral Fees VII: Charterholder / Candidate Responsibilities 66
- 67. CFA Code of Ethics I: Professionalism II: Integrity of Capital Markets III: Duties to Clients IV: Duties to Employers V: Investment Analysis, Recommendations, Actions VI: Conflicts of Interest VII: Charterholder / Candidate Responsibilities 67
- 68. VII: Charterholder / Candidate Responsibilities VII.A.: Conduct VII.B.: Reference to Institute, Designation, Program 68
- 69. VII: Charterholder / Candidate Responsibilities VII.A.: Conduct Nothing harming Institute/designation/exam process – Exam cheating, disregarding exam policies, disclosing confidential exam information – Attempting to circumvent exam security – Improper use of designation or association w/Institute – Misrepresent on Prof. Conduct Stmt/Prof. Dev Program – Can express disagreement with program 69
- 70. VII: Charterholder / Candidate Responsibilities VII.A.: Conduct VII.B.: Reference to Institute, Designation, Program 70
- 71. VII: Charterholder / Candidate Responsibilities VII.B.: Reference to Institute, Designation, Program • Do not exaggerate • Do not over-promise competency • Do not over-promise future investment results • Can make statements that emphasize the Institute’s thoroughness, rigour, commitment to ethics • Can express opinions about relative merits of the program • Can express candidacy but not partial designation • To be a candidate you must be registered for the exam 71
- 72. VII: Charterholder / Candidate Responsibilities VII.A.: Conduct VII.B.: Reference to Institute, Designation, Program 72
- 73. CFA Code of Ethics I: Professionalism II: Integrity of Capital Markets III: Duties to Clients IV: Duties to Employers V: Investment Analysis, Recommendations, Actions VI: Conflicts of Interest VII: Charterholder / Candidate Responsibilities VII.A.: Conduct VII.B.: Reference to Institute, Designation, Program 73
- 74. CFA Code of Ethics I: Professionalism II: Integrity of Capital Markets III: Duties to Clients IV: Duties to Employers V: Investment Analysis, Recommendations, Actions VI: Conflicts of Interest VII: Charterholder / Candidate Responsibilities 74
Editor's Notes
- COURSE OBJECTIVES 1.Know the CFA code of ethics 2.Build skills and interpreting ethics-related situation 3.Understanding how industry work
- CFA brand Tie members
- Violation of any law is violation of A KNOWINGLY=PEOPLE have the reasonable ground to believe Can not pretend to be blind That is based on what your peer(who didn’t participate in the event ) will think as reasonable(reasonable ground) Loophole / molingliangke Application of the law notification of known violations, report situation to supervisor, seek an independent legal opinion and determine whether the regulator should be notified of the error Dissociating from a violation, when knowing that certain information(ex. Preliminary prospectus) is misleading, if matter is not remedied and employer does not dissociate from the underwriting. One should sever the connections with …..+legal advice Misrepresenting performance, assisting in violating of 1A Following the highest requirement Law and regulation based on religious tenets-for investor with particular compliance Reporting potential unethical actions Failure to maintain knowledge of the law
- When involving in creation of products/services whereas the distributor might not doing this, that make you vicariously liable and responsible for that distributor in that senses. Firm should 1. develop/Adopt code and standard of ethics 2. provide information about applicable law 3. Establish procedure for reporting violations.
- Buy-side clients Fund manager and custodial relationships Investment banking &research, analyst client relationship Recommended procedure for compliance 1. protect the integrity of opinion 2. create a restricted list 3. restrict special cost arrangement 4. limit gifts token items only business related entertainment. 5. restrict investment 6. review procedures-supervisor review procedures related to the personal investment 7.independence policy compensation that rewards objectivity and accuracy Separate reporting structures Performance measurement and attribution Public companies Credit rating agency opinions Influence during the manager selection/procurement process Issuer-paid research travel funding -ex. flying on a corporate or chartered jet or attending sponsored conferences, should use commercial travel or aviod the appearance Performance measurement; attribution
- May not affect yourself but that may affect how others see about that -can not guarantee investment performance -no one can guarantee that, remember what you have control over
- Exercise care/ Diligence when using 3rd party information Although 1c didn't’t require a benchmark to be provided but when using it it should not be misrepresented -any data point that omit can be perceived as omission or misrepresentation Plagiarism –authorizing Ok to distribute 3rd party report, even to precis those reports –extent to oral communication, use of audio/ VIDEO MEDIA, ELECTRONIC MEDIA Not include the paid study and research-cannot claim when left position Recommended procedure for compliance -factual presentation, firm, can provide guidance for written /oral communication -designating who can speak on behalf of the firm Qualification summary -use outside information Maintain webpages Plagiarism policy-maintain copies of source material -attribute quotations(projections, table, statistics) -attribute summaries(paraphrases or summaries) …......as pre so ....time .....atribution
- Boarder guidance -business of finance is build on the soul of foundation of trustworthiness -conduct reflected the integrity and competence of member Recommended procedure for compliance -Code of ethics -List of violations -Employee reference
- For people who possesses material nonpublic information that could affect the value of an investment must act or cause others to act on the information -impact on the price of the security Front-running ; act on informaion Test-consider the source and likely effect Less likely less likely More ambiguous less likely Nonpublic – information is nonpublic is not available to the public –selectively disclosed by a corporation to a small group of investors or analysts-->This is ok to get it or have it but just do not act on it Exception -—mosaic theory-analysis of public information -analysis of nonmaterial nonpublic info -may lead to a conclusion that may be material nonpublic -save and document all research Social media -m/C Should verify that info is that available at anywhere? Publicly available from another source -if you distribute info with sources make sure any regulatory filings have been made -public dissemination -adopt compliance procedures Adopt disclosures -issue press release -firewall element -appropriate interdepartmental communication -physical separation of department -sale & reporting In banking & corporate finance -record maintenance -proprietary trading procedures -communication to all employees
- Intent to mislead -may do sth that distort prices or inflate trading volume -but with o intent
- Pomp and dump the scheme(misleading information in order to favor own position) ; rely not only on rumor to writing, also more tactics, to motivate market, pennies stock Two type Information based manipulation Spreading false rumors to induce trading by others Transaction-based manipulation -wash trade: giving the impression of activity cornering -securing a dominant/controlling position in a financial asset to exploit and manipulate the price related derivative Standard 2b excludes legitimate trading strategies Ex. 2million share Sell Buy puts Selling on expiration day Manipulation? Benefit by one’s owner behavior Material,non public info?
- 3A is not a substitute for any legal obligation Some statuary, more strict obligation apply -if has custody of client asset, heightened level of responsibility Identifying the actual investment client -in short-> the beneficiary, some may no be your client Eg; pension plans, trust, client is not the person who hire the PM, client are beneficiaries of the fund .. When there is no beneficiary (index fund) -decision do not have to be based on beneficiary requirement only to the mandate
- Care -fiduciary duties-people acting for the benefit of another party-managing asset -this duty exceed what is acceptable in normal ( statuary duty to minor) -people with limited infor -duty in law Deal fairly with all client with respect investment action ->Developing the client’s portfolio -suitability Disclose all potential conflicts of interest to the client -client guidelines are followed 3A DECISION SHOULD BE JUDGED in the context of the total portfolio (regardless the effect of particular investment ) -for portfolio with variety of stock (independently, non correlated) -in differ industries Soft commission policies Proxy voting policies -custody of client/for their value Violate 2b? Hedge fund with high volume of share possible Correct action for proxy voting Ex. Client approval, Doing research In house custody service 1.All trading through brokerage Firm policies- follow all applicable laws =establish investment objective of the client -consider all info when taking actions Suitability-client security portfolio Diversity Regular reviews
- Disclose Conflicts of interest Compensation arrangement Vote proxies Maintain confidentiality See best execution Consider client first
- Fairly ⍀equitable, equally -client may be at different level of service and fees (service levels／fees disclosure) （available to all clients）
- Favoritism based on -wealth
- Written police Heighten for employee Important All orders processed FIFO basis Best price is the best price can get Best execution is the one that aggregate al the order, bundling when efficient =process to determine execution prices and partial fills Disclosure allocation process; disclosure don not except people from 3b Ssystematic account review
- Weighted average –allocation For the fair communication – for investor in the different stages
- (3a) When m/C (member of Canada ) Suitability does not mean no losses -expected return does not guarantee actual return -unsolicited order If m/c knows such an order is unsuitable, should get them acknowledge that Manger should act in accordance with the mandate ----investment policy statement ----regular updates/ reviews -------suitability test policies
- M/C only responsible for information that is known
- Hit ratio: number of correct calls/ Total calls Made 10 call 4 of them happen to be right Must present accurately and completely GIPS: Global investment performance standard -include all account -include terminated accounts -gross or net of fees taxes, inflation -maintain data and records used to calculate performance
- 1.Information concerns illegal action on the part of the client 2.Disclosure is required by law(if applicable laws require confidentiality, even if 1. above applies, M/C must follow law ) 3.Client or prospective client permits it How about stolen? Firm have police This standard does not prevent the m/c from cooperating with CFA-PCP if requested to supply client account info --don’t disclose anything -if outside of the scope of the confidential relationship and does not involve illegal activity may be ok(can provide with the public contact number, so that is not the confidential information, but when it related to the phone number then that is confidential )
- Loyalty Client. .> integrity of capital market.>employer interest.> m/c interest Problem. Employers are not obligated to adhere to the code ad standards -m/c are however Firm should not adopt /develop conflicting practices THEY ARE NOT OBLIGATE!! Independent practice -should disclosure of intent and it is ok Must continue to act in employer’s best interest until resignation takes effect Must not –trade secret 2.Misuse confidential 3.Solicit employer’s client 4.Take client lists May need to cite yourselves work 1.non-compete agreement, legal, 12months, cannot contact with any client within period of 12 moths Whistle blowing – violating 4a ids permitted , protect client or integrity of the market Competition policy Termination policy Incident reporting procedures (whistle blowing) Employee classified in each classes
- Make reasonable efforts to detect and prevent violation law, rules, regulation, Whether or not they are m/c Delegating supervisory duties is no relief from 4 c -if one know or should know that procedures are not being followed, merely having them would not be enough -compliance procedures WHEN VIOLATION ARISES m/c must promptly initiated an investigation to assess extent (employee placed on restricted access pending the outcome) -inadequate procedures Inform senior manager Enforcement of non-investment related policies Enforced Equally Attendance, acceptable workplace actions Tie incentives to adherence Identify situation in which violation are likely to occur and develop compliance procedures that are ; Clearly written and accessible Easy to understand Designate a compliance officer Clear hierarchy of supervisor Who have resources and authority to do so Out line the scope of the procedure along with procedure To monitor/test Once the system is in place, supervisor should Disseminate to appropriate personnel employee Investigate promptly Response to determine scope Restrict employee action pending outcomes
- Must exercise diligence, Depend on Support and resources provided by m/c employer level of thoroughness of the information received Differ with product/ security being analyzed Reasonable basis mean based on a set of facts known and understood at the time Reasonable basis Depend on balance of what is known and what resources have been provided When using secondary resources Assess-assumption used Rigor of the analysis(anything quantity and historical, look at the methodiology, test and replicate what you down) Date and timeline Evaluation of the conclusion When research vendor are chosen from above m/c may use it in good faith -Quantitatively quantified research -developing quantitatively oriented techniques -
- Before Today is fact Tomorrow is opinion Communication with the client and prospective clients m/c –clear -frequent update with client ===understanding of -thorough instrumental factor, opinion Ensure all client are traded Must known the limitation and risks of the analysis When you see the risk then people known what they are doing and been aware of the risk and limitation Identifying limitation of analysis Risk disclosure Having no knowledge Informing the client about what you found and do in the 5a Is that the defensible ? Can you answer other’s people Internal peer reviews
- Last learning objective (communication with c or pc) Defensible ! To support your output/ Analysis more defensible Record are property of the firm -regulators often impose requirement with the required time frame for retaining records(7 years) -recommended procedures for compliance Responsibility to maintain record rest with the firm ---must archive the research note
- 6A Must make full and fair disclosure of all inf --best practice is to avoid real/perceived conflicts If avoidance is not possible Must ensure that conflicts are communicated effectively -participation on outside board -ownership of stocks analyzed ->>>may interfere with the investment recommendation --the mere appearance of a conflict could create problem for m/c their employers -in conflict occur inadvertently must report promptly -disclosure to client -m/c must be and be seen as objective -disclosure to client’ Fee arrangement, subadvisor agreement other non-standard fee structure =cross-department conflicts =conflicts with stock ownership Being recommended to clients Prohibition is unfair, therefore beneficial ownership disclosure is required Conflicts as director -conflict between duty owed to clients vs, to shareholders -option compensation vs. objectivity m/c Should be isolated from those making investment decisions
- Disclosure special compensation agreements that might conflict with client interest -doesn’t mean there are conflict -people may have no conflict at all -appearance of conflict led to misunderstanding Including information on compensation packages in promotional literature
- Avoiding potential conflicts m/c is free to invest personally as long as 1). The client is not disadvantage by any trade 2).rules does not benefit personally from the trades undertaken for clients 3).m/c complies with applicable regulatory requirements -extends to trades that may counter to current recommendations ,as long as these three is applicable then ok Personal trading secondary to trading for clients Ex. client place big order in a certain range you know that going to push up the price a little bit so you want to buy it in the front That call Front running Getting information from client as to what order will hit the market that called order flow Or refers to the compensation that a broker receives, not from its client, but from a third party that wants to influence how the broker routes client orders. RPFC Limited participation in equity IPO Restriction on private placement Establish a blackout/restricted period-not practical for large firms, shall cover all involved in the decision-making process
- Confidential program information Additional CFA program restrictions Expressing an opinion -m/c are free to disagree and express their disagreement with cfa Cannot disclosure content-specific information
- The most Point of disagreement -meant to prevent promotional efforts that make promises or guarantee that are tied to the CFA CFA institute, CFA institute membership Are trade make, member are not owner 1.-remit annually a professional conduct statement 2.-pay applicable membership dues Using the CFA designation Those who have earned it, may use the trade marker, "chartered financial analyst ” or “CFA” -Must also satisfy membership requirements to maintain their right to use the designation -still need to pay in the rest of their life Only the right to write a cheque to CFA every year MBA in finance =CFA Designation -Never state/imply partial designation or cite an expected completion date -if your pass all three level in consecutives years, you can say so but you cannot say it gives you superior ability
- C, CFA protocal one knee bow their heads to a 33 title and cast their gaze downward