Cfa Level Iii - Study Session 1

Front 1

Standards of Professional Conduct

Back 1

I. Professionalism
II. Integrity of Capital Markets
III. Duties to Clients
IV. Duties to Employers
V. Investment Analysis, Recommendations, and Actions
VI. Conflicts of Interest
VII. Responsibilities as a CFA Institute Member or CFA Candidate

Front 2

What is the Standards of Practice Handbook for?

Back 2

It is guidance for interpreting and implementing the Code (of Ethics).
It suggests procedures to prevent violations.

Front 3

CFA Professional Conduct Program

Back 3

Has two principles
i) fair process to member
ii) confidentiality of proceedings
CFA oversees the PCP via the Disciplinary Review Committee (DRC)

Front 4

What outcomes can the Disciplinary Review Committee hand out?

Back 4

1. no disciplinary sanction
2. cautionary letter
3. continue proceeding to discipline, propose a disciplinary sanction
4. if member rejects the sanction, it can be referred to a CFA panel hearing

Front 5

Do firms have to adopt CFA Code and Standards?

Back 5

There is no formal procedure, but CFA does encourage firms to adopt code.
If the firm says you are 'compliant' then they need to fully understand

Front 6

What is the Standards of Practice Council? (SPC)

Back 6

A group of 15 CFA's who maintain the standards, to make sure they are
i) representative
ii) relevant
iii) globally (applicable)
iv) sufficiently (practical and specific)
v) enforceable
vi) testable (for the CFA program)

Front 7

Code of Ethics - ONE

Back 7

Act with integrity, competence, diligence, respect, and in an ethical manner with the public, clients, prospective clients, employers, employees, collegues in the investment profession, and other participants in the global capital markets.

Front 8

Code of Ethics - TWO

Back 8

Place the integrity of the investment profession and the interests of clients above their own personal interests.

Front 9

Code of Ethics - THREE

Back 9

Use reasonable care and exercise independent professional judgment when conducting investment analysis, making investment recommendations taking investment actions, and engaging in other professional activities.

Front 10

Code of Ethics - FOUR

Back 10

Practice and encourage others to practice in a professional and ethical manner that will reflect credit on themselves and the profession.

Front 11

Code of Ethics - FIVE

Back 11

Promote the integrity of, and uphold the rules governing, capital markets.

Front 12

Code of Ethics - SIX

Back 12

Maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals.

Front 13

Standards of Professional Conduct - One

Back 13

Professionalism
A. Knowledge of the Law
B. Independence and Objectivity
C. Misrepresentation
D. Misconduct

Front 14

Standards of Professional Conduct - TWO

Back 14

Integrity of Capital Markets
A. Material Nonpublic Information
B. Market Manipulation

Front 15

Standards of Professional Conduct - THREE

Back 15

Duties to Clients
A. Loyalty, Prudence, and Care
B. Fair Dealing
C. Suitability
D. Performance Presentation
E. Preservation of Confidentiality

Front 16

Standards of Professional Conduct - FOUR

Back 16

Duties to Employers
A. Loyalty
B. Additional Compensation Arrangements
C. Responsibilities of Supervisors

Front 17

Standards of Professional Conduct - FIVE

Back 17

Investment Analysis, Recommendations, and Actions
A. Diligence and Reasonable Basis
B. Communication with Clients and Prospective Clients
C. Record Retention

Front 18

Standards of Professional Conduct - SIX

Back 18

Conflicts of Interest
A. Disclosure of Conflicts
B. Priority of Transactions
C. Referral Fees

Front 19

Standards of Professional Conduct - SEVEN

Back 19

Responsibilities as a CFA Institute Member or CFA Candidate
A. Conduct as Members and Candidates int he CFA Program
B. Reference to CFA Institute, the CFA Designation and the CFA Program

Front 20

Knowledge of the Law (SOPC1)

Back 20

In conflict, comply with the more strict law, rule or regulation.
Members must not knowingly participate or assist in and must dissociate from violation of laws, rules and regulations.

Front 21

What to do if client/employee is doing something illegal or unethical

Back 21

1. Go to supervisor or compliance
2. Directly confront person
3. Step away, disassociate, take name off reports
4. You DON'T have to report it to regulatory body
5. If the lawyer says don't worry about it, it doesn't absolve you from compliance with the law.
Inaction = Participation

Front 22

Compliance for

Knowledge of the Law (1A)

Back 22

i) Stay informed
ii) Review procedures (at employer)
iii) Maintain current files (of regulations)

Front 23

Application of

Knowledge of the Law (1A)

Washington is asked to use promotional material that includes an erroneous performance number when soliciting business for the firm

Back 23

Misrepresenting performance is a violation and though she didn't calculate it, if she were to use it she is then participating.

Front 24

Independence and Objectivity (SOPC1B)

Back 24

Maintain independence and objectivity.
Must not offer, solicit or accept any gift, benefit, compensation, etc that could BE SEEN to compromise their own independence and objectivity.

Front 25

Types of Objectivity Killers

Back 25

i) gifts, invitations, tickets, job referrals
ii) Allocation of shares in oversubscribed IPOs to to managers personal account
iii) Investment-Banking Relationships (chinese wall)
iv) Public Companies (not every stock is a 'buy' rating) a good co. doesn't mean a good stock
v) Buy-Side Clients - Institutions who hold a big position and are buyers of the sell-side analyst research want a good report so that it holds up the value of their holdings.
vi) Issuer paid research - by small co's who want their business assessed.


Gifts from cilents are ok because it is seen as supplementary compensation. It is bad if the gift from one client makes you act to the detriment of other clients.

Front 26

Compliance for

Independence and Objectivity (SOPC1B)

5 points

Back 26

1. Compensation that respects integrity of opinions
2. Create a restricted list for controversial firms where no information is written.
3. Limit gifts and restrict cost arrangements like hotel/air costs for meetings.
4. Limit IPO buying by employees
5. Supervisory procedures

Front 27

Application of Standard

Independence and Objectivity
(SOPC1B)

Back 27

i. Remote location travel that is paid for is ok.
ii. Full research coverage can't be charged to the buyer based on a positive recommendation
iii. If buy-side has large position in stock to be written up, it should be put on a restricted list with no opinion to be issued
iv. Edwards gives a lot of his commission to a brokerage house and then the brokerage house gives him big gifts compromises independence because it may not be best execution price.
v. Gifts from clients are ok, but you have to tell your employer because you might show preference to that client for IPOs etc.

Front 28

Misrepresentation (SOPC1C

3 points

Back 28

Can't knowingly misrepresent
1. This is ommission
2. Untrue statements
3. Includes situations where member should have known that the misrepresentation had been made.

Front 29

Compliance for

Misrepresentation (SOPC1C)

Back 29

Prevent misrepresentation by
i) Designating one employee to speak on behalf of the firm
ii) Keep copies of all research reports and ideas used to make a report
iii) Attribute quotations to everyone except where they are recognised financial and stat reporting services
iv) Attribute summaries wherever they are used

Front 30

Application for

Misrepresentation (SOPC1C)

Back 30

i. issuer-paid analyst researcher doesn't disclose relationship on his website. even if research is supported and accurate, must disclose relationship.
ii. reports with typos in them are ok as long as the incorrect material isn't distributed after the discover has been made.
iii. Muhammad's unfinished MBA is on marketing materials that he uses. He violates because he SHOULD have know about the error after using them for so long.
iv. Reproducing large parts of anothers report without acknowledgment is a violation.
v. Selling MBS Interest Only strips as 'guaranteed by gov' is misrep because the IO's aren't
vi. Using a computer model even if completely tweaked must be acknowledged because the innovation came from someone else.
vii. Even when using P/E, s.d or other general concepts best practice is to translate into analysts own words.
viii. Source of info twice removed should be acknowledged after contacting the first author, unless the second author has interpreted it and you use that interpretation.
ix. Even if you buy packaged reports for your small firm to redistribute, you shouldn't say that you are the author.

Front 31

Misconduct (SOPC1D)

Back 31

Members can't engage in any professional conduct that is dishonest or fraudulent that reflects badly on profession, integrity or competence.

Front 32

Compliance recommendations for

Misconduct (SOPC1D)

Back 32

i. Have a code of ethics for the firm
ii. Distribute a list of potential violations to employees
iii. Check references of employees

Front 33

Application for

Misconduct (SOPC1D)

Back 33

i. no drinking on the job because it impacts business judgment
ii. Any kind of fraud in the workplace is prohibited
iii. you can be a protester and you are not in violation for misconduct because it isn't related to fraud

Front 34

Standard II

Material Nonpublic Information (SOPC2A)

Back 34

Members with private info
1. Must not act on that information
2. Must not cause others to act on that information

Material is where disclosure would change the price of a stock or if an investor would want to know this information before investing. It has to be somewhat reliable and specific to be considered material.

Nonpublic is marketplace in general, not just a small group of investors. You don't have to wait for the slowest method of delivery

Front 35

Compliance for

Material Nonpublic Information (SOPC2A)

Back 35

i. Encourage issuing company to make information public
ii. If they won't do it, take it to your internal compliance and don't invest on the information.
iii. Companies should think about issuing press releases ahead of analyst meetings.
iv. A ban on proprietary activity isn't what you should do if a firm has material nonpublic info because a market maker for a small issue would impact liquidity by not trading. This would be a tip to outsiders, so they should be passive traders when they have MNPI.

Front 36

Application of

Material Nonpublic Information (SOPC2A)

Back 36

i. President's wife tells daughter, tells husband who tells stockbroker. Husband violates because he cause the stockbroker to act on MNPI. Stockbroker is also at fault.
ii. Info in a lift is MNPI and she violates by acting on it.
iii. Open phone call in Peters office with people walking in and out. Peter violates by failing to prevent the misuse and transfer of MNPI. The people who walk in/out and trade on it also violate.

Front 37

Integrity of Capital Markets (SOPC2)

Market Manipulation (SOPC2B)

Back 37

Member can't
1. Do things that distort prices
2. Artificially inflate trading volume to mislead market participants.
3. Hold a dominant position in a stock to manipulate the price of a related derivative.
4. Legitimate orders for a thinly traded stock are ok even if they move the market price and tax-selling is also ok, because it isn't done with the intention of moving the price.

Front 38

Application of

Market Manipulation (SOPC2B)

Back 38

i. Writing reports at quarter-end quiet periods so that the company can't respond to try and make the stock price tank, so your clients can cover short positions.
ii. Even if manipulating a stock benefits your clients you can't do it because it distorts the price.
iii. If you exaggerate earnings projections (even a little bit above) to fuel a gain then this is a violation.

Front 39

Duties to Clients (SOPC3)

Loyalty, Prudence, and Care (SOPC3A)

Back 39

1. Act for the benefit of the client
2. Clients' interests before their employer's or their own interests.
3. Figure out to whom the fiduciary duty is owed.

Front 40

Fiduciary duty (under Duty to Client)

Back 40

1. The duty under fiduciary relationship exceeds what is acceptable in other business relationships because it is an enhanced position of trust.
2. If a manager has a pf of pension plans, the client is not the person who hires the manager, but the beneficiaries of the plan or trust.
3. Watch for charities with prohibited investments. Risky assets are sometimes ok if they are part of a risk/return balanced portfolio.

Front 41

Compliance for

Loyalty, Prudence and Care (SOPC3A)

Back 41

1. Vote proxies because they have an economic value to the client. Cost benefit may mean that sometimes voting all proxies may not benefit the client.
2. In selecting broker for transactions watch out for 'soft dollars' where research services are bought to benefit investment manager. Ok to use 'directed brokerage' where it benefits the client.
3. Mangers should diversify
4. Deal fairly with all clients, don't favour one over the other.
5. Disclose conflicts of interest and compensation arrangements
6. Maintain confidentiality
7. Put clients first
8. Seek best execution

Front 42

Application for

Loyalty, Prudence and Care (SOPC3A)

Back 42

i. Client brokerage has to be used to benefit the client, not the company or a close affiliate.
ii. You can direct trades through a certain broker as long as you seek best price and execution. If you are NOT getting best price and execution then you have to disclose the client.
iii. Even if the securities bought are appropriate and acceptable for the client if you churn then you are using the clients assets to benefit the firm and yourself.

Front 43

Standard III - Duties to Clients

Fair Dealing (SOPC3B)

Back 43

i. Investment Recommendations: Treat all clients fairly with disseminating information and IPOs.
ii. Investment Action: Be fair when taking investment action, don't favour one client over the other. Like quality and timing of services.
iii. Be fair in other professional activities.

You don't have to be EQUAL but you have to be FAIR. You can give a better service to clients who pay more and not all opportunities are suitable for all clients. Especially when CHANGING an opinion, not so much with a new opinion.

iv. If someone tries to trade against the opinion that was given out, make sure they know of the information first.
v. Disclose to clients if there are certain allocation procedures that the firm has.

Front 44

Compliance for

Fair Dealing (SOPC3B)

Back 44

i. Limit people who know that there is a recommendation coming out
ii. Shorten the time frame between decision and dissemination
iii. Have a restricted list
iv. Find a method for simultaneous disemination, like email
v. Have a list of clients and their holdings so that you know who to tell.
vi. Have written trade allocation procedures (e.g. FIFO, partial fills, block trade rules like pro-rataing, IPOs allocated by client not by investment manager)

If you have INEQUITABLE trade allocation procedures, disclosure DOES NOT get around them. Trade allocation has to always be fair and equitable.

Front 45

Application for

Fair Dealing (SOPC3B)

Back 45

1. Disclosure of the bank's unfair trade allocation policy does not change the fact that it is unfair and violating SOPC
2. Trade for yourself last, even behind institutional customers.
3. Email everyone and then tell your largest 3 clients is ok.

Front 46

Standard III - Duties to Clients

Suitability (SOPC3C)

Back 46

1. If you are someone's advisor then you
i. Make a reasonable inquiry into the clients risk and return appetite/objectives and update this regularly
ii. determine suitability BEFORE the recommendation and BEFORE the trade.
iii. Look at the suitability in the context of the TOTAL portfolio

2. If you have a mandate, strategy or style you have to follow that mandate at all times.

Front 47

Application of

Suitability (SOPC3C)

Back 47

i. If you get an unsolicited for a client that is unsuitable for their account, you need to get a statement from the client that suitability isn't a concern.
ii. If a client withholds information about their financial situation, members should act based on the information provided. If they withhold something from you and you act poorly from lack of that info, you aren't responsible.
iii. Most important is clients tolerance for risk.
iv. If client gets rich then you have to reassess IPS (inv. policy stat.)
v. Even if you buy a venture capital stock for highly liquid fund even to diversify it violates because it is against the mandate.

Front 48

Compliance for

Suitability (SOPC3C)

Back 48

1. Write up a IPS for each client
i. Client identification (type of client, separate beneficiaries, % of total client assets)
ii. Investor objectives (return, risk)
iii. Investor contraints (liquidity needs, expected CF, investable funds, time horizon, tax, legal and investor preferences e.g. ethical inv.)
iv. Performance measurement benchmarks

Front 49

Standard III - Duties to Clients

Performance Presentation (SOPC3D)

Back 49

Investment performance has to be
1. Fair
2. Accurate
3. Complete

i. Includes any misrepresentation of performance record in presentation or measurement.
ii. Includes dodging on past performance or expected future performance.
iii. Includes composites and individual accounts, composite of analyst and/or firms results.

Front 50

Compliance for

Performance Presentation (SOPCSD)

Back 50

1. Think about how smart/sophisticated your audience is
2. Show performance for a weighted composite of pf's not a single account
3. Include terminated accounts in performance history
4. Disclose things like gross of fees, net of fees, after tax etc
5. Maintain data and records used to calculate performance.

Front 51

Application for

Performance Presentation (SOPC3D)

Back 51

i. Avoid disclosing a one year history that was 25% but just tracked the market.
ii. If you say you are GIPS then your composites have to be asset weighted. Even if you are using the data correctly if you say you are GIPS and you aren't you are violating THIS SOPC3D
iii. Performance at a previous employer CAN be used in presentations, but it must be disclosed.
iv. You have to say whether your results are simulated as a disclosure

Front 52

Standard III - Duties to Clients

Preservation of Confidentiality (SOPC3E)

Back 52

Members have to keep information confidential about
1. Current, Former and Prospective clients

UNLESS

1. Illegal on the part of the client
2. Disclosure is required by law
3. The client permits disclosure of the information
4. You still have to cooperate with the CFA Institute PCP when they are investigating you, you can use your own clients as support.

If disclosing confidential information about the client is the information material and going to help you improve service to the client?

Front 53

Application of the Standard

Preservation of Confidentiality (SOPC3E)

Back 53

1. If you're an investment advisor and one of your clients is rich and wants to give to another of your clients that is a charity, you can't tell the charity about your rich client because she shared confidential information about herself.
2. If a CFO is embezzling out of an account, then check with investment firms compliance department as well as outside counsel to see whether securities regulations require you to report that.

Front 54

Standard IV - Duties to Employers

Loyalty (SOPC4A)

Back 54

1. Act for the benefit of your employer
2. Don't deprive them of your skills and abilities like entering into an independent competitive activity. You can do independent work, but you have to disclose length and compensation to employer.
If you are just preparing a private practice you don't need to tell your employer.
3. Don't divulge confidential information about your employer
4. Don't cause harm to your employer

i Independent Practice
ii. Leaving an Employer (misappropriation of trade secrets, misuse of confidential information, solicitation prior to leaving, self-dealing and taking client lists)
iii. Whistleblowing
iv. Nature of Employment

Front 55

Application of the Standard

Loyalty (SOPC4A)

Back 55

i. Can't solicit current clients to be prospective clients at your new employer
ii. If your company is getting bought out and management isn't telling you and you want to run an employee led buyout that is ok, but you should get legal counsel first.
iii. If you are writing a one of consulting report and you get hired at a new firm, you have to make the report available only to the person who paid you for it. If they waive their rights to the report, then you can use it at the new employer.
iv. If you're interning and you don't get paid, you still can't take info with you because you used their resources.
v. You can't take client lists with you, but if you remember their names and call them then that is ok. Your skills and experience from being employed are not confidential or privileged information and you can use them at a new employer without violating the code.
vi. If you are mayor (as another job) you can work it as long as the time commitments aren't too high that they detract from current employer.

Front 56

Standard IV - Duties to Employers

Additional Compensation Agreements (SOPC4B)

Back 56

Members can't accept gifts, benefits or compensation that competes with employers interest, or might be expected to compete with employers interest unless they get written consent from ALL parties involved (employer from employee)
These affect loyalties and objectivity and create potential conflicts of interest.

Front 57

Application of the Standard

Additional Compensation Agreements (SOPC4B)

Back 57

1. If my account goes well I'll fly you to Paris. This is a additional compensation could've meant this client received preferential treatment over another client.

Front 58

Standard IV - Duties to Employers

Responsibilities of Supervisors (SOPC4C)

Back 58

Members have to make an effort to detect and prevent violations of laws, rules, regulations and code by anyone under their supervision.
i. Delegation does not absolve you of ultimate responsibility.
ii. If something goes wrong, as long as you have made reasonable efforts to write compliance procedures and enforce them so that this shouldn't have gone wrong, you should be ok. Just writing them isn't enough.

Front 59

Compliance for

Responsibilities of Supervisors (SOPC4C)

Back 59

Have compliance procedures that are
i. clear
ii. easy to understand
iii. have a compliance officer with authority and resources to crack the whip
iv. outline permissible conduct
v. spell out procedures for reporting violations and sanctions.

Front 60

Application for

Responsibilities of Supervisors (SOPC4C)

Back 60

1. If someone issues an unfavourable report and Manager A doesn't stop Employee B from trading on it then Manager A is in violation.
2. Employee C tells Manager A about a takeover. Manager A tells Employee C to write up a recommendation. It turns out rumours were false. Manager A wasn't responsible and is in violation because she didn't check for a reasonable and adequate basis.

Front 61

Standard V - Investment Analysis Recommendations, and Actions

Diligence and Reasonable Basis - (SOPC5A)

Back 61

Members should
1. Be diligent, independent and thorough before making investment decisions
2. Have a reasonable and adequate basis supported by documented research before an investment decision/action.
Member should offer to provide information to client when recommending a stock.

i. Using secondary or third-party research? Make sure it's sound.
ii. Group research and decision making? If you disagree with the recommendation you can still put your name on it as long as you concur with the process to reach that decision.

Front 62

Compliance for

Diligence and Reasonable Basis - (SOPC5A)

Back 62

1. There should be a review process internally before releasing a report
2. Develop guidance rules for writing a report
3. Have tools to assess how well a research report is written

Front 63

Application for

Diligence and Reasonable Basis - (SOPC5A)

Back 63

i. Make sure new IPOs have appropriate due diligence done on them
ii. Balance your estimates by giving a worse case scenario and a best case scenario.
iii. You can't just create a chat room and promote tech co's endlessly to get new business without a basis on which you are doing so.
iv. If information changes you have to update your reports
v. If you pay to use other co's research, make sure they have an adequate basis on which to make that report.

Front 64

Standard V

Communication with Clients and Prospective Clients (SOPC5B)

Back 64

Members must
1. Disclose to current/future clients how the investment process works
2. Figure out what factors the advisor thinks are important to the investment and tell the client that.
3. Distinguish between fact and opinion

Front 65

Compliance for

Communication with Clients and Prospective Clients (SOPC5B)

Back 65

Figuring out whether an advisor has used reasonable judgment is really on a case by case basis.
i. Keep documentation so that you can defend your reasonable judgment and other parts used to support your decisions/analysis.

Front 66

Application for

Communication with Clients and Prospective Clients (SOPC5B)

Back 66

i. Even if an investment model is really difficult to explain, you still have to define the logic, i.e. the basis for your recommendation.
ii. Don't publish your opinion as if it is fact
iii. Even if models are proprietary, reports should be balanced and have all scenarios detailed, like high interest rates/ low interest rates.
iv. If you change your investment style, from low cap to high cap, domestic to foreign, equity to derivatives, you have to tell ALL clients, not just the new ones about the change.
v. If you change your internal stock/research report approval process then you have to tell your clients because they might have wanted a particular person to write/review it.

Front 67

Standard V

Record Retention - (SOPC5C)

Back 67

Members have to
1. Develop appropriate ways to keep records
2. Keep the records and maintain them (hard copy or electronic) for at least 7 years. These are property of the firm.

Front 68

Compliance for

Record Retention - (SOPC5C)

Back 68

Responsibility is for the firm to maintain the records more than it is the individuals responsibility.
The individual can help matters by keeping records for current recommendations.

Front 69

Application for

Record Retention - (SOPC5C)

Back 69

i. If stocks go down and a client complains that is ok as long as you show that you explained that that could happen. If they want a benchmark pf and the benchmark crashes, then that is ok.
ii. If you create a great model you can't take the records to a new employer, you have to recreate it from scratch.

Front 70

Standards VI - Conflicts of Interest

Disclosure of Conflicts - (SOPC6A)

Back 70

Members must
1. Make FULL and FAIR disclosures of things that could reasonably impair independence/objectivity.
2. Disclosures have to be prominent, use plain language and be relevant.
3. Disclosure to clients
Disclosure of conflicts to employers
You can decide how often and how to make these disclosures. You should err on the side of caution and repetition.

Front 71

Compliance for

Disclosure of Conflicts - (SOPC6A)

Back 71

1. Disclose commissions, incentive fees, performance fees and referral fees. If the firm is a market maker of a stock, then the client might be buying from the firms stock and the firm may have an interest in the price of that stock.
2. Most common disclosure is when the analyst owns the stock they recommend. Since not all stocks can be blocked from trading, disclosure is more appropriate.
3. If things happen inadvertently then they need to be reported immediately to employer to be resolved.

Front 72

Application for

Disclosure of Conflicts - (SOPC6A)

Back 72

i. Any kind of underwriting relationship is a special past and future relationship with investment advice attached to it, so it threatens independence and must be disclosed.
ii. If you recommend a stock and then your wife inherits a large position after the report, there should be a follow up report disclosing this.
iii. If you say 'buy' and your stock holding isn't material, you still have to disclose because you stand to make a personal gain.
iv. If you are paid based on performance and you switch to high-beta stocks you have to tell clients. You are allowed to be paid based on performance, but it can't conflict with the objectives of the accounts.
v. If you have options from listing an IPO and issue a favourable research report then you have to disclose your ownership. It is okay to hold this asset, but you have to tell everyone.
vi. If you get a trailer, you have to tell your clients that you have additional compensation coming to you from doing their trades. That way your clients can see whether your investment decisions are impacted by these relationships. You also have to tell your employer about these relationships.
vii. If you start sitting on a board of a charity and think you shouldn't tell your employer, you should because it might still take up your time. You should also say what your investment decisions will be at the charity by sitting on the board.

Front 73

Standards VI - Conflicts of Interest

Priority of Transactions - (SOPC6B)

Back 73

1. Trades for clients and employers come first before personal trades.

This is designed to prevent any potential conflict of interest or an appearance of a conflict of interest.
You can own the same stock as your clients, but you have to act for them first before you sell out of your own trade or give them enough time to act.
Family accounts at the firm should be traded like any other account and neither shown preference or disadvantage.

Front 74

Compliance for

Priority of Transactions - (SOPC6B)

Back 74

1. Write good work policies so that employees know how to avoid conflicts.
i. Restrict participation in Equity IPOs even when there is no conflict of interest.
ii. Restrict managers from buying private placements
iii. Have black-out periods to avoid front-running
iv. Have reporting requirements like duplicate confirmations, disclosure of personal ownership and preclearance procedures.
v. Make policies available for new employees so they know how they should act.

Front 75

Application for

Priority of Transactions - (SOPC6B)

Back 75

i. If you want to issue a recommendation, you can't buy it just before you write the recommendation
ii. Can't buy for your husbands account at a different brokerage before you buy it for the mutual fund you manage
iii. If you leave your parents account until last, you are breaching your duty of care. If they pay fees they are entitled to the same treatment as everyone else.
iv. If you issue a sell recommendation and trade on it yourself 7 minutes later, then you aren't giving your clients enough time to respond to the information.

Front 76

Standards VI - Conflicts of Interest

Referral Fees - (SOPC6C)

Back 76

Disclose any compensation for recommending products and services to:
1. Employer
2. Clients AND prospective clients

This allows the clients to assess your objectivity and the full cost of the services.
Also included here are non-cash benefits like soft dollars and in-kind.

Front 77

Application of

Referral Fees - (SOPC6C)

Back 77

i. If you get a new client and you are paying someone else a referral fee to get them, then you have to tell the new client. This includes where the referral fee is actually a soft dollar like research services.
ii. Even if you are referring clients in house with the same company, you have to tell the client when you get a referral fee. This disclosure should be in writing.
If you are generating NEW GENERAL business for the company then the new client is obviously going to know the employee is getting some referral fee, so this standard isn't mean to cover these situations. If he is selling PROPRIETARY products, where the sales rep will get additional compensation then there should be a disclosure. Best practice is to disclose everything.

Front 78

Standard VII - Responsibilities as a CFA Institute Member or CFA Candidate

Conduct as Members and Candidates in the CFA Program - (SOPC7A)

Back 78

Members can't
1. Compromise the reputation or integrity of the CFA Institute
2. Can't compromise the integrity of the exam where you are undermining the public's confidence in CFA charter.

NOTE: This does not cover expressing an opinion about the CFA program or institute, you are free to disagree with policies and procedures.

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Application of

Conduct as Members and Candidates in the CFA Program - (SOPC7A)

Back 79

i. If a proctor gives his two friends a run-down prior to the exam then everyone is at fault. Since his friends accepted the information then they are in violation.
ii. If you are an exam grader and talk about it after the exam you are in violation of the Grader Agreement.
iii. If you are the chair for your local CFA and you only schedule your friends to speak you are using your volunteer position to benefit you and your clients.

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Standards VII - CFA

Reference to CFA Institute, the CFA Designation, and the CFA Program

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When talking about the CFA Institute
1. Must not misrepresent
2. Exaggerate the meaning of membership to CFA, holding a CFA or being a candidate

This is all about preventing the promotional efforts that make promises or guarantees tied to the designation like overpromising competency or investment results.

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Application for

Reference to CFA Institute, the CFA Designation, and the CFA Program

Back 81

i. You can say that everyone passed on the first time, but you can't say that this makes them more successful.
ii. If you don't file your Professional Conduct Statement and stop paying your dues, you can't say you're a CFA charterholder
iii. If you retire you need to get 'retired status' if you want to use the CFA