10 Ethical and Professional Standards

CFA课程Ethical and Professional Standards，一到三级均适用，内容全面，适合有较多时间复习者

Ethical and Professional Standards

• Ethics and Trusts
  • Ethics
    • Definition: A set of moral principles (What is good, acceptable, or obligatory behavior and bad, unacceptable, or forbidden behavior) or rules of conduct that provide guidance for our behavior when it affects others
    • Stakeholders VS Stockholders
      • Definition: Stakeholders— individuals or groups of individuals who could be affected either directly or indirectly by a decision and thus have an interest, or stake, in the decision
      • Types of stakeholders
        • Colleagues
        • Our clients
        • Our employers
        • The communities in which we live and work
        • Regulators
        • Other financial market participants
    • Ethics Conduct
      • Definition: Behavior that follows moral principles and balances self-interest with both the direct and the indirect consequences of the behavior on others
      • Ethical behavior is central to creating trust
      • Actions that are perceived as beneficial and conforming to the ethical expectations of society
    • Government
      • In some countries, the law requires that an investment adviser act in the best interests of his or her client
      • Other countries require that investment professionals recommend investments that are suitable for their clients
  • Code of Ethics
    • Definition: codify beliefs about obligatory and forbidden conduct in a written set of principles
    • Role: Serves as a general guide for how community members should act
    • Standards of conduct（Expand code）
      • Role: Serve as benchmarks for the minimally acceptable behavior of community members and can help clarify the code of ethics
      • consequences of violations
        • Damage the community's reputation (internally)
        • Lead to reduced trust among community members
  • Ethics and profession
    • Terms: job, vocation, profession
    • How Professions Establish Trust
      • Normalize practitioner behavior
      • Provide a service to society
      • Professions are client focused (fiduciary duty)
      • High entry standards
      • Possess a body of expert knowledge
      • Encourage and facilitate continuing education
      • Monitor professional conduct
      • Collegial (respectful to each other)
      • Recognized oversight bodies
      • The engagement of members
  • Challenges to ethical behavior
    • Overconfidence can lead to faulty decision making (internal trait）)
    • Decision makers often fail to recognize and/or significantly underestimate the effect of situational influences
      • Money
      • Promotions
      • Prestige
      • Loyalty to employer and colleagues
      • A strong compliance culture
  • Ethical VS. Legal Standards
    • Laws and regulations often codify ethical actions that lead to better outcomes for society or specific groups of stakeholders
    • The law is not always the best mechanism to reduce unethical behavior because of
      • Follow market practices
      • Take significant time
      • Vague, conflicting, and/or too narrow
      • Vary across countries or jurisdictions
      • Subject to interpretation and compliance
    • Legal and ethical conduct are not always the same
      • 1.Civil disobedience 非暴力反抗 被认为是道德的但是违法 2. Whistleblowing 在职揭发 可能是违法的但被认为是道德的
  • Framework for ethical decision making
    • Roles
      • Increase the ability and motivation of market participants by integrating ethics into the decision-making activities
      • Help professionals to determine the best course of action to fulfill their responsibilities in an ethical manner
      • Help a decision maker see the situation from multiple perspectives
      • Facilitate the decision-making process for all decisions
      • when a dilemma occurs, a professional should raise an issue internally with a senior employee
    • 步骤
      • Identify: Relevant facts, stakeholders and duties owed, ethical principles, conflicts of interest
      • Consider: Situational influences, additional guidance, alternative actions
      • Decide and act
      • Reflect: Was the outcome as anticipated? Why or why not?
      • The process is often iterative
• Code of Ethics
  • CFA Institute Professional Conduct Program
    • The CFA Institute Board of Governors maintains oversight and responsibility for the Professional Conduct Program (PCP)
    • In conjunction with the Disciplinary Review Committee (DRC)
    • PCP&DRC: Enforcement of the Code and Standards
  • Inquiries come from a number of sources
    • Self-disclosure on annual Professional Conduct Statements of involvement in civil litigation or a criminal investigation, or written complaint
    • Written complaints about professional conduct received by the Professional Conduct staff
    • Evidence of misconduct by a member or candidate that the Professional Conduct staff received through public sources
    • Violated testing rules on exam day
    • A report by a CFA exam proctor of a possible violation during the examination
  • Proceedings
    • Once an inquiry is initiated
      • Interview the subject member or candidate
      • Interview the complainant or other third parties
      • Collect documents and records relevant to the investigation
    • The Designated Officer may decide
      • That no disciplinary sanctions are appropriate
      • To issue a cautionary letter
      • To discipline the member or candidate
  • Six components
    • Act with integrity, competence, diligence, and respect and in an ethical manner with the public, clients, prospective clients, employers, employees, colleagues in the investment profession, and other participants in the global capital markets
    • Place the integrity of the investment profession and the interests of clients above their own personal interests
    • Use reasonable care and exercise independent professional judgment when conducting investment process
    • Practice and encourage others to practice in a professional and ethical manner that will reflect credit on themselves and the profession
    • Promote the integrity and viability of the global capital markets for the ultimate benefit of society
    • Maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals
• Guidance for Standards I-VII
  • 专业性 (professionalism)
    • 对法律的了解 (knowledge of the law)
      • Content
        • You must understand and comply with all applicable laws, rules, and regulations of any government
        • In the event of conflict, you must comply with the more strict law, rule, or regulation
        • Must not knowingly participate or assist in any violation
        • Must dissociate from any violation of such laws, rules, or regulations
      • Guidance
        • Relationship between the Code and Standards and Applicable Law
          • Must know and should know the laws and regulations
          • Not expert on all laws that could potentially govern his activities, not expert on compliance
          • Always adhere to the most strict rules and requirements that apply.
          • You must not engage in conduct that constitutes a violation of the Code and Standards, even though it may otherwise be legal
          • Comply with the last applicable law if transferable applicability
        • Participation in or Association with Violations by Others
          • Know → report through supervisor or compliance department → may consider confronting wrongdoers → (if unsuccessful) → dissociate and document → quit
          • Suspect → Consult → but can’t be absolved from requirements to compliance
          • There is no requirement under Standards to report violations to governmental authorities
          • CFA Institute strongly encourages members and candidates to report potential violations
          • Inaction: may be construed as participation or assistance in the illegal or unethical conduct
        • Investment Products and Applicable Laws
          • Be mindful of: where these products or packages will be sold as well as their places of origination
          • Should make reasonable efforts to review whether associated firms that are distributing products or services also abide by the laws and regulations
          • Should undertake necessary due diligence when transacting cross-border business to understand the multiple applicable laws and regulations
          • Seek appropriate guidance from the firm's compliance or legal departments and legal counsel outside the organization when uncertain about which laws or regulations in conducting business in multiple jurisdictions
      • Recommended Procedures
        • For members and candidates
          • Stay informed: regularly informed about changes in laws, rules and regulations 定期了解法律变化
          • Review procedures: 确保是当前现行的法律
          • Maintain current files: maintain or encourage their employers to maintain readily accessible current reference copies of applicable statutes, rules, regulations 保留可直接参考的文件
          • Distribution area laws: Should make reasonable efforts to understand the applicable laws – both country and regional
          • Legal counsel: When in doubt about the appropriate action, seek the advice of legal counsel or compliance personnel. If a potential violation exists, should seek the advice of legal counsel
          • Dissociation: When dissociate, should document the violation and urge their firms to persuade the perpetrators to cease such conduct. May have to quit the job
        • For firms
          • Develop or adopt a code of ethics: The ethical culture starts at the top; should encourage supervisors or managers to adopt
            • When in ethical dilemmas? adhering to the Code facilitates solutions and prevent the need of a "whistleblowing" solution publicly alleging concealed misconduct
          • Provide information on applicable laws
            • Pertinent information that highlights applicable laws and regulations might be distributed to employees or made available in a central location
            • Information sources might include primary information developed by the relevant governmental agencies, regulatory organizations and professional associations (e.g., from websites); and association publications (e.g., CFA Magazine)
          • Establish procedures for reporting violations: Firms might provide written protocols for reporting suspected violations
    • 独立性和客观性 (independence and objectivity)
      • Content
        • You must use reasonable care and judgment to achieve and maintain independence and objectivity in their professional activities
        • Must not offer, solicit, or accept any gift, benefit, compensation, or consideration that reasonably could be expected to compromise their own or another's independence and objectivity
      • Guidance
        • Gifts
          • Reject gift that could be expected to compromise their own or another's independence and objectivity (Best Practice)
            • Modest and normal gift is OK only if its purpose is not to influence independence
            • Benefits may include gifts, invitations to lavish functions, tickets, favors, etc.
          • Gift from corporate: should evaluate both the actual effect on his independence and objectivity and in the eyes of clients
          • Gift from clients: should be disclosed, if not → violate I(B)
            • When possible, prior to accepting "bonuses" or gifts from clients, you should disclose to their employers
            • If notification is not possible prior to acceptance, You must disclose to their employers benefits previously accepted from clients
            • Reasons for disclosing: allows the employer of a member or candidate to make an independent determination about the extent to which the gift may affect the member's or candidate's independence and objectivity
        • Buy-Side Clients: may try to pressure sell-side analysts
          • Institutional clients are the primary users of sell-side research, either directly or with soft dollar brokerage
          • Rating downgrade: some portfolio managers may support sell-side ratings inflation → affect the portfolio's performance and manager's compensation
          • Portfolio performance is subject to media and public scrutiny, affect the manager's professional reputation
          • For portfolio managers:
            • It is improper to threaten or engage in retaliatory practices
            • Although most portfolio managers do not engage in such practices, the perception by the research analyst that a reprisal is possible may cause concern and make it difficult to maintain independence
        • Fund Manager and Custodial Relationships
          • Responsible for hiring and retaining outside managers and third-party custodians should not accept gifts, entertainment, or travel funding that may be perceived as impairing their decisions
          • Primary and secondary fund managers and third-party custodians often arrange educational and marketing events to inform others about their business strategies or investment process
          • Must review the merits of each offer individually in determining whether they may attend yet maintain independence
        • Investment Banking Relationships
          • Firewall between research and investment banking should be built to minimize conflicts of interest
            • Separate reporting structures for personnel on the research side and personnel on the investment banking side
            • Compensation arrangement that minimizes the pressures on research analysts and rewards objectivity and accuracy
            • Compensation should not link analyst remuneration directly to investment banking assignments in which analyst may participate as a team member
          • It is appropriate to have analysts work with investment bankers only when the conflicts are adequately and effectively managed and disclosed
          • Firms should also regularly review policies and procedures to determine whether analysts are adequately safeguarded and to improve the transparency of disclosures relating to conflict of interests
        • Performance Measurement and Attribution
          • As performance analysts, their analysis may reveal instances where managers may appeared to stray from their mandate. Or the performance analyst may receive requests to alter the construction of composite indices due to negative results for a selected account or fund
          • Must not allow internal or external influences to affect their independence and objectivity as they faithfully complete their performance calculation and analysis related responsibilities
        • Public Companies
          • Analysts should not be pressured to issue favorable research by the companies they follow. Can promise to cover the firm but not promise favorable report about the firm. Not every stock is a "buy"
          • Due diligence in financial research and analysis involves gathering information from public disclosure documents and other relevant sources
        • Credit Rating Agency Opinions
          • At rating agencies should ensure that procedures at the agencies prevent undue influences from a sponsoring company during the analysis
          • Should abide by their agencies' and the industry's standards of conduct regarding the analytical process and the distribution of reports
          • The rating agencies need to develop the necessary firewalls and protections
          • When using information provided by credit rating agencies, you should be mindful of the potential conflicts of interest
        • Influence during the Manager Selection/Procurement Process
          • Maintain independence and objectivity beyond investment management
          • When serving in a hiring capacity, You should not solicit gifts, contributions, or other compensation that may affect their independence and objectivity
          • Requesting contributions to a favorite charity or political organization may also be perceived as an attempt to influence the decision-making process
          • Refuse gifts, donations, and other offered compensation that may be perceived to influence their decision-making process.
        • Issuer-Paid Research
          • Remember that this type of research is fraught with potential conflicts
          • Analysts' compensation for preparing such research should be limited, and the preference is for a flat fee that is not linked to their conclusions or recommendations (directly or indirectly)
          • Must fully disclose potential conflict of interest, including the nature of compensation. If not → misleading investors
          • Conduct a thorough analysis of the company's financial statements based on public information, benchmarking within a peer group, and industry analysis
        • Travel Funding
          • The benefits related to accepting paid travel extend beyond the cost savings to the member or candidate and his firm, such as the chance to talk exclusively with the executives of a company
          • Best practice: always use commercial transportation rather than accept paid travel arrangements from an outside company
          • Should commercial transportation be unavailable, may accept modestly arranged travel to participate in appropriate information-gathering events, such as a property tour
        • Social activities: When seeking corporate financial support for conventions, seminars, or even weekly society luncheons, should evaluate both the actual effect on their independence and whether their objectivity might be perceived to be compromised in the eyes of their clients
      • Recommended procedures
        • Protect the integrity of opinions – unbiased opinion and adequate system
          • Establish policies that every research report concerning the securities of a corporate client should reflect unbiased opinion
          • Compensation systems should protect integrity in investment decision process by maintaining independence and objectivity of analysts
        • Create a restricted list: 如果公司不愿意传播关于公司客户的负面意见，你应该鼓励公司将有争议的公司从研究领域中移除，并将其列入限制名单，这样公司就只能传播关于公司的事实信息
        • Restrict special cost arrangements: When attending meetings at an issuer's headquarters, you should pay for commercial transportation and hotel charges. No corporate issuer should reimburse members or candidates for air transportation
        • Limit gifts - token items only. Customary and ordinary business-related entertainment is okay as long as its purpose is not to influence independence; based on local customs and whether the limit is per gift or annual total amount
        • Restrict investments: Firms set up policy related to
          • Employee purchases of equity or equity-related IPO
          • Pre-approval for employee participation in IPO, and prompt disclosure of investment actions taken following the offering
          • Restrict acquiring securities in private placements
    • 不当陈述 (misrepresentation)
      • Content
        • Must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities
        • Once finding misrepresentation (e.g. typographical error), correct the error as soon as possible, or violate I (C)
      • Guidance
        • Types of misrepresentation
          • A misrepresentation is any untrue statement or omission of a fact or any statement that is otherwise false or misleading
            • Oral representations, advertising (whether in the press or through brochures), electronic communications, or written materials (whether publicly disseminated or not)
            • "Knowingly" means that either know or should have known that the misrepresentation was being made or that omitted information could alter the investment decision-making process
            • Omission of a fact or outcome
          • Findings from models shall not be presented as fact.(e.g., BSM)
          • Omissions are also important in regards to what information is provided concerning the performance measurement and attribution process
          • Should encourage their firms to develop strict policies for composite development to prevent cherry picking
        • Impact on Investment Practice
          • Guarantee the investment performance
            • Prohibit: Guaranteeing specific return which is inherently volatile, because it is misleading to investors
            • Not prohibit: Providing clients with information on investments that have guarantees built into the structure of the product or for which an institution has agreed to cover any losses
          • You must not misrepresent any aspect of their practice, including (but not limited to) their qualifications or credentials, the qualifications or services provided by their firm, their performance record and the record of their firm, and the characteristics of an investment
          • A company is prohibited from saying "we can provide all services you need". Proper way is to provide a list of services available
          • Investing through outside managers: If invest in areas outside a firm's core competencies through outside managers, must disclosed intended use of external managers, You must not represent those managers' investment practices as their own
        • Performance Reporting
          • You may misrepresent the success of their performance record through presenting benchmarks that are not comparable to their strategy
            • Best practice: selecting the most appropriate available benchmark from a universe of available options
          • The transparent presentation of appropriate performance benchmarks is an important aspect in providing clients with information that is useful in making investment decisions
          • Standard I(C) does not require that a benchmark always be provided in order to comply
          • Some investment strategies may use reference indices that do not reflect the opportunity set of the invested assets
          • You should discuss with clients on a continuous basis the appropriate benchmark to be used for performance evaluations and related fee calculations
          • Reporting misrepresentations may also occur when valuations for illiquid or non-traded securities are available from more than one source
            • You should take reasonable steps to provide accurate and reliable security pricing information to clients on a consistent basis
            • Consistency in the reported information will limit misperceptions that misrepresented values may have assisted in manipulating investors into continuing to hold certain securities in their portfolios
            • Changing pricing providers should not be based solely on the justification that the new provider reports a higher current value of a security
        • Social Media
          • When communicating through social media channels, you should provide only the same information they are allowed to distribute to clients and potential clients through other traditional forms of communication.
          • The perceived anonymity granted through these platforms may entice individuals to misrepresent their qualifications or abilities or those of their employer; violation of Standard I(C)
        • Plagiarism
          • Definition: Copying or using in substantially the same form materials prepared by others without acknowledging the source of the material or identifying the author and publisher of such material
          • Must not copy (or represent as their own) original ideas/material without permission. Must acknowledge and identify the source of ideas/material that is not their own
          • Forms of plagiarism
            • Take a study done by others, change name, and release
            • Using excerpts from others' reports (whether verbatim or slight changes in wording) without acknowledgement
            • Citing "leading analysts" and "investment experts" without naming specific reference
            • Using charts and graphs without stating sources
            • Presenting statistical estimates of forecasts prepared by others and identifying the sources without including the qualifying statements or caveats that may have been used
            • Copying proprietary computerized spreadsheets or algorithms without authorization of the creators
            • Preparation of research reports based on multiple sources of information without acknowledging the sources
            • Cannot use undocumented forecasts, earnings projections, asset values
          • In distributing 3rd-party, outsourced research, may use and distribute reports as long as not representing oneself as the author
            • May add value for the client by sifting through research and repackaging it for clients
            • Should disclose whether the research presented comes from another source, from either within or outside the member's firm
          • When citing from mainstream media outlet
            • Cannot only cite the information from the intermediary, in case of misunderstanding and potential deviation from the viewpoint of the original author
            • Best practice
              • Obtain the information directly from the author and cite only that author
              • Use the information provided by the intermediary and cite both sources
        • Work Completed for Employee
          • Firm may issue future reports without attribution to prior analysts, but a you cannot reissue a previously released report solely under his or her name
          • When the original analyst leaves the firm, research and models developed while employed are the property of the firm. The firm retains the right to continue using the work completed after leaving
          • The firm may issue future reports without providing attribution to the prior analysts
      • Recommended procedures
        • Factual presentations
          • Fairly present firm's capabilities
          • Written list of available services & a description of qualifications
          • By designating which employees are authorized to speak on behalf of the firm
        • Qualification summary
          • List of services available, qualifications and experience
          • Firms periodically review employee correspondence and documents that contain representations of qualifications
        • Verify outside information
          • Misrepresentation by third party may damage its reputation and integrity of capital market
          • Encourage to develop policy to verify
        • Maintain webpage
          • Regularly monitor materials posted on the site to ensure current information
          • Take precautions to protect the site's integrity, confidentiality and security, and ensure that the site does not misrepresent and provides full disclosure
        • Plagiarism policy
          • Maintain copies: Keep copies of all material containing research ideas, new statistical methodologies, and other materials that were relied on in preparing the research report
          • Attribute quotations: Attribute to their sources any direct quotations, including projections, tables, statistics, model/product ideas, and new methodologies prepared by persons other than recognized financial and statistical reporting services or similar sources
          • Attribute summaries: Attribute to their sources any paraphrases or summaries of material prepared by others. → If attribute other analyst's summaries to support his own analysis, he must acknowledge in his report the reliance on the other analyst's report
    • 不当行为 (misconduct)
      • Content: Must not engage in any professional conduct involving dishonesty, fraud, or deceit or commit any act that reflects adversely on their professional reputation, integrity, or competence
      • Guidance
        • Dishonest conduct
          • Any act that involves lying, cheating, stealing, or other dishonest conduct
          • Do not abuse this standard to settle personal, political, or other disputes unrelated to professional ethics
        • Absence of appropriate conduct and sufficient effort
          • You are expected to conduct the necessary due diligence to understand the nature and risks of investment before making investment recommendations
          • If not taking such steps, instead, relying on others, is violation
        • Conduct that damages trustworthiness or competence may include behavior that negatively affects ability to perform professional activities
          • Personal bankruptcy may not reflect on the integrity or trustworthiness of the person declaring bankruptcy, but if the circumstances of the bankruptcy involve fraudulent or deceitful business conduct, the bankruptcy may be a violation of this standard
      • Recommended procedures
        • Adopt a code of ethics
        • List of violations: Disseminate a list of potential violations and associated disciplinary sanctions to all employees
        • Employee references: Check references to ensure good character and eligible for work in the investment industry
  • 对资本市场的诚信 (integrity of capital markets)
    • 重大非公开信息 (material nonpublic information)
      • Content: Who possess material nonpublic information that could affect the value of an investment must not act or cause others to act on the information
      • Guidance
        • Use of information
          • Trading or inducing others to trade on material nonpublic information will cause investors to avoid capital markets because the markets are perceived to be "rigged" in favor of the knowledgeable insider
          • Must not use such information to
            • Directly buy and sell of individual securities or bonds
            • Influence their investment actions related to derivatives, mutual funds, or other alternative investments
        • What Is "Material" Information?
          • Material Nonpublic: Information is "material" if
            • Its disclosure would likely have an impact on the price of a security
            • Reasonable investors would want to know the information before making an investment decision
          • Substance and specificity determines the materiality
            • Company-related information
              • Earnings
              • Mergers, acquisitions, tender offers, or joint ventures
              • Changes in assets or asset quality
              • Innovations products, processes, or discoveries
              • New licenses, patents, registered trademarks, or regulatory approval/rejection of a product
              • Developments regarding customers or suppliers (e.g. the acquisition or loss of a contract)
              • Changes in management
              • Changes in auditor notification or the fact that the issuer may no longer rely on an auditor's report or qualified opinion
              • Events regarding the issuer's securities
              • Bankruptcies
              • Significant legal disputes
              • New or changing equity or debt rating issued by third party
            • Macro-economy
            • Large orders
            • Well known analyst
            • Qualified personnel
            • Competitors
              • Competitor's estimation → not MNI
              • 竞争对手可能是来“钓鱼”的
        • What Constitutes "Nonpublic" Information?
          • Information is "nonpublic" until it has been disseminated or is available to the marketplace
            • Not necessary to wait for the slowest method of delivery
            • Once the information is disseminated to the market, it is public information that is no longer covered by this standard
          • Selective disclosure
            • Disclosure to a room full of analysts does not necessarily make the disclosed information "public"
            • Analysts should also be alert to the possibility that they are selectively receiving MNI when a company provides them with guidance or interpretation of financial statements or regulatory filings
          • When can use "nonpublic" Information: You may use insider information provided legitimately by the source company for the specific purpose of conducting due diligence according to the business agreement between the parties for such activities as mergers, loan underwriting, credit ratings, and offering engagements
        • Mosaic Theory
        • Social Media: Members and candidates participating in groups with membership limitations should verify that material information obtained from these sources can also be accessed from a source that would be considered available to the public (e.g., company filings, webpages, and press releases)
        • Using Industry Experts
          • Members and candidates may provide compensation to individuals for their insights without violating this standard. However, members and candidates are ultimately responsible for ensuring the information they receive does not constitute material nonpublic information
          • You would be prohibited from taking investment actions on the associated firm until the information became publicly known to the market
          • Firms connecting experts with members or candidates often require both parties to sign agreements concerning the disclosure of material nonpublic information
        • Investment Research Reports
          • When a well-known or respected analyst issues a report or makes changes to his or her recommendation, that information alone may have an effect on the market and thus may be considered material
          • Theoretically, such a report would have to be made public before it was distributed to clients
      • Recommended Procedures
        • Achieve public dissemination
          • Should encourage firms…
          • Particularly important is improving compliance in such areas as the review of employee and proprietary trading, documentation of firm procedures, and the supervision of interdepartmental communications in multi-service firms
          • Compliance procedures should suit the particular characteristics of a firm, including its size and the nature of its business
          • Disclosure: You should encourage the development of and compliance with procedures for distributing new and updated investment opinions to clients; material market moving information that needs to be communicated to all clients fairly
        • Adopt compliance procedures
        • Adopt disclosure procedures
        • Issue press releases
          • Companies should consider issuing press releases prior to analyst meetings and conference calls and scripting those meetings and calls to decrease the chance that further information will be disclosed
          • If MNI is disclosed for the first time in an analyst meeting or call, the company should promptly issue a press release or otherwise make the information publicly available
        • Firewall elements: The minimum elements include, but are not limited to
          • Substantial control of interdepartmental communications, preferably through a clearance area in either the compliance or legal department
          • Documentation of the procedures designed to limit the flow of information between departments and of the actions taken to enforce those procedures
          • Review of employee trading through the maintenance of "watch", "restricted" and "rumor" lists
          • Heightened review or restriction of proprietary trading while a firm is in possession of MNI
        • Appropriate interdepartmental communications
        • Physical separation of departments
        • Prevention of personnel overlap
        • A reporting system: Inter-department communication
          • Should consult a designated compliance officer to determine whether sharing the information is necessary and how much to be shared
          • If sharing is necessary, the compliance officer should coordinate the process of "looking over the wall"
          • A single supervisor or compliance officer should decide
            • Whether or not information is material
            • whether it is sufficiently public to be used as the basis for investment decisions
        • Personal trading limitations
          • Firms should consider restrictions or prohibitions on personal trading and should carefully monitor proprietary trading
          • Should require employees to make periodic reports (to the extent that such reporting is not already required by securities laws) of their own transactions and transactions made for the benefit of family member
          • Securities should be placed on a restricted list when a firm has or may have MNI
        • Record maintenance
          • Multi-service firms should maintain written records of the communications between various departments
          • Firms should place a high priority on training and consider instituting comprehensive training programs, particularly for employees in sensitive areas
        • Proprietary trading procedures
          • Monitor and restrict proprietary trading when holding MNI
          • Prohibition on all proprietary activity when owning MNI is not appropriate; depend on the types of proprietary trading
            • Market maker in possession of MNI, withdrawal from market making will be a clear tip to market. Remain passive to market (take only contra side of unsolicited customer's trades)
            • Risk-arbitrage trading: Best to stop; If not stop, prove the adequacy of their internal procedures, and must demonstrate stringent review and documentation of firm trades
        • Communication to all employees
          • Written compliance policies and guidelines should be circulated to all employees
          • Policies and guidelines should be used in conjunction with training programs aimed at enabling employees to recognize MNI
          • Sufficient training to either make an informed decision or to realize they need to consult a supervisor or compliance officer before engaging in questionable transactions
    • 操纵市场 (market manipulation)
      • Content
        • You must not engage in practices that distort prices or artificially inflate trading volume with the intent to mislead market participants
        • Market manipulation includes
          • Info-based: Dissemination of false or misleading information
          • Transaction-based: You knew or should have known that transactions deceive or would be likely to mislead market participants by distorting the price-setting mechanism
      • Guidance
        • The intent of the action is critical to determining whether it is a violation
          • Not prohibit legitimate trading strategies that exploit a diff in market power, info, or other inefficiency
          • Not prohibit trade for tax purposes, selling then buying back. (repo)
        • To increase liquidity, Futures Exchange made agreements with members to insure the minimum trading volume in exchange for reduction of commission
          • If for the interest of clients and disclosed, not violate
  • 对客户的责任(duties to clients)
    • 忠诚，审慎，尽心尽职(loyalty, prudence and care)
      • Content
        • You have a duty of loyalty to their clients and must act with reasonable care and exercise prudent judgment
        • Must act for the benefit of their clients and place their clients' interests before their employer's or their own interests
        • Fiduciary requires higher duty to other business duty
          • Definition: A fiduciary is someone who acts for the benefit of someone else. In a position of trust, fiduciaries owe undivided loyalty to their clients
          • Prudent man rule: A fiduciary must direct and operate the client's assets according to a higher standard of loyalty and extra care than the standard to which most people are held
          • Any pooling of funds must be managed in strict accordance to the trust documents
          • The duty required in fiduciary relationships exceeds what is acceptable in many other business relationships because a fiduciary is in an enhanced position of trust
        • Prudence requires caution and discretion
          • In managing a client's portfolio, prudence requires following the investment parameters set by the client and balancing risk and return
          • Acting with care requires a prudent and judicious manner in avoiding harm to clients
        • Standard III(A) is not a substitute for legal or regulatory obligations
      • Guidance
        • Understanding the Application of Loyalty, Prudence, and Care: Standard III(A) does not render all members and candidates fiduciaries, but requires you to work in the client's best interest no matter what the job function
          • The conduct may or may not rise to the level of being a fiduciary, depending on the type of client, whether they are giving investment advice, and the many facts and circumstances surrounding a particular transaction or client relationship
          • A member or candidate who does not provide advisory services to a client, but who acts only as a trade execution professional must prudently work in the client's interest when completing requested trades
          • The extent of the advisory arrangement and limitations should be outlined in the agreement with the client at the outset of the relationship
          • You should inform clients that the advice provided will be limited to the propriety products of the firm and not include other products available on the market. Clients who want access to a wider range of investment products would have the information necessary to decide not to engage with Members or candidates working under these restrictions
          • Recommending the allowable products that are consistent with the client’s objectives and risk tolerances
          • They would exercise care through diligently aligning the client’s needs with the attributes of the products being recommended
          • Besides offering a limited product selection, you should place the client's interests first by disregarding any firm or personal interest in motivating a recommended transaction
          • Standard III(A) requires them to fulfill the obligations outlined explicitly or implicitly in the client agreements to the best of their ability and with loyalty, prudence, and care
        • Identifying the Actual Investment Client
          • Four types of clients
            • Individual
            • Beneficiary
            • Mandate
            • Investing public
          • Not only put obligations to clients first in all dealings but also endeavor to avoid all real or potential conflicts of interest
          • Even not have responsibilities of direct investment management, "clients" should also be considered
        • Developing the Client's Portfolio
          • The manager in these situations should ensure that the client's objectives and expectations of the account are realistic and suitable to their circumstances and that the risks involved are appropriate
          • In most circumstances, recommended investment strategies should relate to the long-term objectives and circumstances of the client
          • Must follow any guidelines set by their clients for asset management
          • Investment decisions must be judged in the context of the total portfolio rather than by individual investment within the portfolio
        • Soft Commission Policies
          • An investment manager often has discretion over the selection of brokers executing transactions. Conflicts arise when an investment manager uses client brokerage to purchase research services → "soft dollars" or "soft commissions"
          • Whenever using client brokerage to purchase goods or services that do not benefit the client, should disclose to clients the methods or policies followed in addressing the potential conflict
            • A member or candidate who pays a higher commission than he or she would normally pay to purchase goods or services, without corresponding benefit to the very client, violates III (A)
          • Directed brokerage: A client will direct a manager to use the brokerage to purchase goods or services for the client, and such a practice does not violate any duty of loyalty
            • Obligated to seek "best execution"(refers to a trading process that seeks to maximize the value of the client's portfolio within the client's stated investment objectives and constraints) and "best price", and assured that the goods or services purchased from the brokerage will benefit the account beneficiaries
            • Should disclose to the client and obtain written consent that the client may not get best execution from the directed brokerage if he insist on trading through that broker
        • Proxy Voting Policies
          • Proxies have economic value to a client and must ensure properly safeguard and maximize this value
          • An investment manager who fails to vote, casts a vote without considering the impact of the question, or votes blindly with management on non-routine governance issues may violate III(A)
          • A cost–benefit analysis may show that voting all proxies may not benefit the client, so voting proxies may not be necessary in all instances. Should disclose to clients their proxy voting policies
      • Recommended Procedures
        • Regular account information
          • Members and candidates with control of client assets should submit to each client, at least quarterly, an itemized statement showing
          • The funds and securities in custody plus all debits, credits, and transactions that occurred during the period
          • Should disclose to the client where the assets are to be maintained, where or when they are moved
          • Should separate the client’s assets from any other party’s assets, including the member's or candidate's own assets
        • Client approval
          • If uncertain about the appropriate action to a client, should ask what he or she would expect or demand if he were the client
          • If in doubt, should disclose questionable matter in writing to the client and obtain client approval
        • Must consider the appropriateness and suitability of the investment relative to
          • The client's needs and circumstances
          • The investment's basic characteristics
          • The basic characteristics of the total portfolio
        • Diversify
        • Vote proxies: In most cases, should determine
          • Who is authorized to vote shares
          • Vote proxies in the best interests of clients and ultimate beneficiaries
    • 公平对待 (fair dealing)
      • Content
        • Must deal fairly and objectively with all clients when
          • Providing investment analysis
          • Making investment recommendations
          • Taking investment action, or engaging in other professional activities
        • Fairly ≠ equally
          • Fairly: Not to discriminate against any clients when disseminating recommendations or taking investment action
          • Equally: Not required to treat all clients exactly the same
        • Report types: initial detailed report, brief update report, by addition to or deletion from a recommended list, or simply by oral communication
        • Premium level service is OK, if not disadvantage or negatively affect other clients. Should be disclosed to clients and available to everyone (should not be selective)
        • Trade: equitable system, pro rata on order size, not on account size
      • Guidance
        • Investment Recommendations
          • Involves members and candidates whose primary function is the preparation of investment recommendations to be disseminated either to the public or within a firm for the use of others in making investment decisions
          • The criterion: the primary responsibility is the preparation of recommendations to be acted on by others, including those in the member's or candidate's organization
          • An investment recommendation is any opinion in regard to purchasing, selling, or holding a given security or other investment
            • Recommendation may be disseminated in different types
            • A recommendation distributed to anyone outside the organization is considered a communication for general distribution
          • Ensure that information is disseminated in a manner that all clients have a fair opportunity to act on every recommendation
            • Should encourage their firms to design an equitable system to prevent selective or discriminatory disclosure
            • Should inform clients about what kind of communications they will receive
          • Material changes in prior recommendations should be communicated to all current clients; particular care should be taken that the information reaches those clients who have acted on or been affected by the earlier advice
            • Clients who do not know the changed recommendation and who place orders contrary to a current recommendation should be advised of the changed recommendation before the order is accepted
        • Investment Action
          • Treat all clients fairly in light of investment objectives and circumstances
          • When making investments in new offerings or in secondary financings, should distribute the issues to all customers who are suitable for the investment and consistent with the policies of allocating blocks of stock
          • If the issue is oversubscribed, should be prorated to all subscribers
            • Should be taken on a round-lot basis to avoid odd-lot distributions
            • If the issue is oversubscribed, should forgo any sales to themselves or immediate families in order to free up additional shares for clients
          • If the investment professional's family-member accounts are managed similarly to the accounts of other clients of the firm, these accounts should not be excluded from buying such shares
          • Must make every effort to treat all individual and institutional clients in a fair and impartial manner
          • Disclose to clients and prospective clients the documented allocation procedures in place and how the procedures would affect them
          • Should not take advantage of their position to the detriment of clients
      • Recommended Procedures
        • Develop firm policies
        • Limit the number of people who are privy to the fact that a recommendation is going to be disseminated
        • Shorten the time frame between decision and dissemination
          • If a detailed recommendation is still in preparation, should publish a short summary including the conclusion in advance
          • In large firms with extensive review process, the long passage of time is not within the control of the analyst. Should communicate to customers and firm personnel by an update or "flash" report
        • Simultaneous dissemination
          • Should not give favored clients info when such action may disadvantage other clients
          • Discuss with some clients after email dissemination, √
        • Develop and document trade allocation procedures: develop a guiding principles that ensure
          • Fairness to advisory clients, both in priority of execution of orders and in the allocation of the price in execution of block orders or trades
          • Timeliness and efficiency in the execution of orders
          • Accuracy of the records as to trade orders and client account positions
        • Disclose trade allocation procedures
          • Trade allocation procedures must be fair and equitable.
          • Disclosure of inequitable allocation methods does not relieve the member or candidate of this obligation
        • Develop written allocation procedures for block trades and new issues
          • Document orders and time stamped
          • FIFO basis
          • Develop a policy to calculate execution prices and “partial fills” in a block trade for efficiency
          • Same commission, same price
          • Pro rata on basis of order size
          • Obtain advance indications of interest, allocate securities by client (not portfolio manager), and provide a method for calculating allocations when allocating for new issues
    • 合适性(Suitability)
      • Content
        • When in an advisory relationship with a client, must
          • Make a reasonable inquiry into a client or prospective client's investment experience, risk and return objectives, and financial constraints; must reassess and update regularly
        • When responsible for managing a portfolio to a specific mandate, strategy, or style, must only make investment recommendations or take investment actions that are consistent with the stated objectives and constraints of the portfolio
      • Guidance
        • Developing an Investment Policy: In an advisory relationship, must gather client information at the inception of the relationship
          • Information includes the client’s financial circumstances, personal data (such as age and occupation) that are relevant to investment decisions, attitudes toward risk, and objectives in investing
          • Information should be incorporated into a written IPS that addresses the client's risk tolerance, return requirements, and all investment constraints
        • Understanding the Client's Risk Profile: One of the most important factors to be considered in matching appropriateness and suitability of an investment with a client's needs and circumstances is measuring that client's tolerance for risk
        • Updating an Investment Policy: Updating the IPS should be repeated at least annually and also prior to material changes to any specific investment recommendations
        • The Need for Diversification
          • An investment with high relative risk may be suitable
            • In the context of the entire portfolio
            • When the client's stated objectives contemplate speculative or risky investments
          • The manager may be responsible for only a portion of the client's total portfolio, or the client may not have provided a full financial picture
        • Addressing Unsolicited Trading Requests
          • You will need to make reasonable efforts to balance their clients'trading requests with their responsibilities to follow the agreed-on investment policy statement
          • You should refrain from making the trade until you discusses the concerns with the client
          • You may have some clients who decline to modify their policy statements while insisting an unsolicited trade be made (可终止)
        • Managing to an Index or Mandate
          • Responsibility is to invest in a manner consistent with the stated mandate
          • Those who manage pooled assets to a specific mandate are not responsible for any individual investor. Only those who have advisory relationship are responsible for individual clients
      • Recommended Procedures
        • Investment Policy Statement (IPS)
          • Include needs, circumstances, performance benchmarks and objectives, and review at least annually
          • An appropriate suitability determination will not prevent some investments or investment actions from losing value
          • Update investors' objectives and constraints periodically
        • Regular updates
          • Should regularly compare constraints with capital market expectations to arrive at an appropriate asset allocation
          • Annual review is reasonable unless business or other reasons, such as a major change in market conditions, dictate more frequent review
          • Should document attempts to carry out review if circumstances prevent it
        • Suitability test policies
          • An analysis on the impact on the portfolio's diversification,
          • A comparison of the investment risks with the client's assessed risk tolerance
          • The fit of the investment with the required investment strategy
    • 陈述投资业绩 (performance presentation)
      • Content: When communicating investment performance information, must make reasonable efforts to make sure that it is fair, accurate, and complete
      • Guidance
        • Prohibit misrepresentations of past performance or reasonably expected performance
        • Include terminated portfolio as part of performance history
        • The performance of weighted rate of return rather than a single performance
        • If the presentation is brief, must
          • Make available to clients and prospects, on request, the detailed information supporting that communication
          • Best practice: brief presentations include a reference to the limited nature of the information provided
      • Recommended Procedures
        • Apply GIPS standards: For members and candidates who are showing the performance history of the assets they manage, compliance with the GIPS standards is the best method to meet their obligations under Standard III(D)
        • Compliance without applying GIPS standards. Can also meet obligations under Standard III(D) by:
          • Considering the knowledge and sophistication of the audience to whom a performance presentation is addressed
          • Presenting the performance of the weighted composite of similar portfolios rather than using a single representative account
          • Including terminated accounts as part of performance history with a clear indication of when the accounts were terminated
          • Including disclosures that fully explain the performance results being reported
          • Maintaining the data and records used to calculate the performance being presented
    • 保密 (preservation of confidentiality)
      • Content
        • Must keep information about current, former, and prospective clients confidential unless
          • The information concerns illegal activities on the part of the client
          • Disclosure is required by law
          • The client or prospective client permits disclosure of the information
        • Standard III(E) is applicable when
          • Receiving information because of special ability to conduct a portion of the client's business or personal affairs
          • Receiving information that arises from or is relevant to that portion of the client's business that is the subject of the special or confidential relationship
      • Guidance
        • Compliance with Laws
          • If applicable law requires disclosure of client information in certain circumstances, members and candidates must comply with the law
          • If applicable law requires maintaining confidentiality, even if the information concerns illegal activities on the part of the client, should not disclose
          • When in doubt, should consult with compliance personnel or legal counsel before disclosing confidential information about clients
        • Electronic Information and Security
          • Many employers have strict policies about how to electronically communicate sensitive client information and store client information on personal laptops, mobile devices or portable disk/flash drives
          • Standard III(E) does not require members or candidates to become experts in information security technology, but they should have a thorough understanding of the policies of their employers
          • Members and candidates should encourage their firm to conduct regular periodic training on confidentiality procedures for all firm personnel
        • Professional Conduct Investigations by CFA Institute
          • Requirements of III(E) are not intended to prevent from cooperating with an investigation by the CFA Institute Professional Conduct Program (PCP)
          • When permissible under applicable law, shall consider the PCP an extension of themselves when requested to provide information about a client in support of a PCP investigation into their own conduct
            • Encouraged to cooperate with investigations into the conduct of others
            • Any information turned over to the PCP is kept in the strictest confidence
            • Will not be considered in violation of this standard by forwarding confidential information to the PCP
      • Recommended Procedures
        • The simplest, most conservative and effective way to comply with III(E) is to avoid disclosing any information received from a client except to authorized fellow employees who are also working for the client
        • Communication with clients(new): Members and candidates should be diligent in discussing with clients the appropriate methods for providing confidential information
  • 对雇主的责任(duties to employers)
    • 忠诚 (loyalty)
      • Content
        • In matters related to their employment, must act for the benefit of employer and not deprive employer of the advantage of their skills and abilities, divulge confidential information, or otherwise cause harm to their employer
        • Core rule: Protect the interests of their firms by refraining from any conduct that would injure the firm, deprive it of profit, or deprive it of the member's or candidate's skills and ability
      • Guidance
        • Employer Responsibilities
          • Encouraged to provide employer with a copy of the Code and Standards
          • Employers are not obligated to adhere to the Code and Standards
          • Senior management has the additional responsibility to devise compensation structures and incentive arrangements that do not encourage unethical behavior
        • Independent Practice
          • "Undertaking independent practice" means engaging in competitive business, as opposed to making preparations to begin such practice
          • Should abstain from independent competitive activity that could conflict with the interests of their employer unless
            • Types of services they will render to prospective independent clients
            • The expected duration of the services
            • The compensation for the services
        • Leaving an Employer
          • Before leaving, the following will cause a violation:
            • Misappropriation of trade secrets
            • Misappropriation of client lists. Memorizing client lists (name and address) is not permitted, unless the info does not come from the records of former employer or violate noncompete agreement
            • Misuse of confidential information
            • Soliciting employer's clients prior to cessation of employment.
            • Self-dealing (appropriating for one's own property a business opportunity or information belonging to one's employer)
          • After leaving, the following will cause a violation:
            • Violation of terms in existing non-compete contract
            • Taking records or files (even rejected idea list) to a new employer without the written permission of the previous employer
          • Once notice is provided to the employer of the intent to resign, must follow the policies and procedures to notify clients of planned departure
          • Once an employee has left the firm, the skills and experience that an employee obtained while employed are not "confidential" or "privileged" information
          • Simple knowledge of names and existence of clients is not confidential information unless deemed such by an agreement or by law
          • Firm records or work performed on behalf of the firm that is stored in paper copy or electronically while employed should be erased or returned to the employer unless the firm gives permission to keep those records after employment ends
          • In some markets, there are agreements between employers within an industry that outline information that departing employees are permitted to take upon resignation
        • Use of Social Media
          • Specific accounts and user profiles of members and candidates that is created for solely professional reasons would be considered part of the firm's assets, thus requiring members and candidates to transfer or delete the accounts as directed by their firm's policies and procedures
          • Best practice for you is to maintain separate accounts for their personal and professional social media activities
          • You should discuss with their employers how profiles should be treated when a single account includes personal connections and also is used to conduct aspects of their professional activities
        • Whistleblowing
          • Personal interests, and interests of employer, are secondary to protecting the integrity of capital markets and the interests of clients
          • When an employer is engaged in illegal or unethical activities, actions taken by the employee that would normally violate loyalty to employer may be justified. Such action would be permitted only if the intent is clearly aimed at protecting clients or the integrity of the market, not for personal gain
        • Nature of Employment
      • Recommended Procedures
        • Competition policy
          • Must understand any restrictions placed by the employer on offering similar services outside the firm while still employed
          • If an employer elects to have its employees sign a non-compete agreement, should ensure that the details are clear and fully explained prior to signing the agreement
        • Termination policy
          • Should establish clear procedures regarding the resignation process, including addressing how the termination will be disclosed to clients and staff
          • May also outline the procedures for transferring responsibilities of ongoing research responsibilities and account management
        • Incident-reporting procedures: Should be aware of firm's policies related to whistleblowing and encourage firms to adopt industry best practices
        • Employee classification: Should understand status within employer firm
    • 作为上级的责任 (responsibilities of supervisors)
      • Content
        • You must make reasonable efforts to ensure that anyone subject to their supervision or authority complies with applicable laws, rules, regulations and the Code and Standards
        • Can delegate, but not relieve of supervisory responsibility
      • Guidance
        • Standard IV(C) requirements
          • A code of ethics
          • Compliance policies and procedures
          • Reviewing employee actions to determine whether they are following the rules
          • Education and training programs
          • An incentive structure that rewards ethical conduct
          • Adoption of firm-wide best practice standards (e.G. The GIPS standards, CFA institute asset manager code of professional conduct)
        • Supervision includes detection
          • Exercise reasonable supervision by establishing and implementing written compliance procedures and ensuring that those procedures are followed through periodic review
          • If a member or candidate has adopted reasonable procedures and taken steps to institute an effective compliance program, then the member or candidate may not be in violation of Standard IV(C) if he or she does not detect violations that occur despite these efforts
        • Inadequate Procedures
          • Those who have supervisory responsibility should bring an inadequate compliance system to the attention of the firm's senior managers and recommend corrective action
          • If the member or candidate clearly cannot discharge supervisory responsibilities, the member or candidate should decline in writing to accept supervisory responsibility until the firm adopts reasonable procedures to allow adequate exercise of supervisory responsibility
        • System for Supervision
          • Should know what an adequate system is，and make reasonable efforts to see that appropriate procedures are established, documented,communicated to covered personnel, and followed. Once such procedures are in place，supervisor must make reasonable efforts to ensure that the procedures are monitored and enforced
          • Once knowing a potential violation, supervisor must promptly initiate an investigation to ascertain the extent of the wrongdoing
            • Relying on employee's statements or assurances that the wrongdoing will not recur and reporting the misconduct up the chain of command and warning the employee to cease the activity are not enough
            • Should take steps to ensure that the violation will not be repeated by
              • Placing limits on the employee's activities or increasing the monitoring of the employee's activities
              • Increasing the monitoring of the employee's activities
      • Recommended Procedures
        • Codes of ethics or compliance procedures: the principles in the code of ethics must be stated in a way that is accessible and understandable to everyone in the firm
        • Adequate compliance procedures should
          • Be clearly written
          • In plain language, easy to understand
          • Designate a compliance officer
          • Describe the hierarchy of supervision and assign duties among supervisors
          • Create a system of checks and balances
          • Outline the scope of the procedures and procedures to document the monitoring and testing of compliance procedures
          • Outline permissible conduct
          • Procedure for reporting violations and sanctions
        • Once compliance program is in place, a supervisor should
          • Disseminate the contents to personnel
          • Periodically update procedures
          • Continually educate personnel regarding compliance procedures
          • Issue periodic reminders of procedures
          • Incorporate professional conduct evaluation in employee's performance review
          • Review the actions of employees
          • Take steps to enforce procedures once violation occurred
        • Once violation is discovered, a supervisor should
          • Promptly respond
          • Thoroughly investigate to determine the scope of the wrongdoing
          • Increase supervision or place appropriate limitations on the wrongdoer pending the outcome of the investigation
        • Regular ethics and compliance training in conjunction with adoption of a code of ethics
        • Supervisors and firms must look closely at their incentive structure to determine whether it encourages profits and returns at the expense of ethically appropriate conduct
          • Only when compensation and incentives are firmly tied to client interests and how outcomes are achieved rather than how much income is generated for the firm, will employees work to achieve a culture of integrity
          • Training and education assist individuals in both recognizing areas that are prone to ethical and legal pitfalls and identifying those circumstances and influences that can impair ethical judgment
          • Education helps employees make the link between legal and ethical conduct and the longterm success of the business
    • 额外的报酬 (additional compensation arrangements)
      • Content: Must not accept gifts, benefits, compensation, or consideration that competes with, or might reasonably be expected to create a conflict of interest with, their employer's interest unless they obtain written consent from all parties involved
      • Guidance
        • "Written Consent" includes any form of communication that can be documented (for example, communication via computer e-mail that can be retrieved and documented)
        • Must obtain permission for additional compensation/benefits because such arrangements may affect loyalty and objectivity and create potential conflicts of interest
        • There may be instances in which a member or candidate is hired by an employer on a "part-time" basis. You should discuss possible limitations to their abilities to provide services that may be competitive with their employer during the negotiation and hiring process
      • Recommended Procedures
        • Should make an immediate written report to employer specifying any compensation they propose to receive for services in addition to the compensation or benefits received from their employer
        • The details of the report should be confirmed by the party offering the additional compensation, including performance incentives by clients
        • The written report should state the terms of any agreement under which a member or candidate will receive additional compensation include
          • The nature of the compensation
          • The approximate amount of compensation
          • The duration of the agreement
  • 投资分析、投资建议和投资行为 (investment analysis, recommendations and action)
    • 审慎与合理的基础 (diligence and reasonable basis)
      • Content
        • Exercise diligence, independence, and thoroughness
        • Have a reasonable and adequate basis, supported by appropriate research and investigation for any investment
        • The requirements for research conclusions vary is different, but must make reasonable efforts to cover all pertinent issues when arriving at a recommendation
        • Provide supporting information to clients enhance transparency
      • Guidance
        • Defining Diligence and Reasonable Basis
          • Some attributes to consider
            • Global, regional, and country macroeconomic conditions
            • Current stage of the industry's business cycle
            • Company's operating and financial history
            • Mutual fund's fee structure and management history
            • Output and potential limitations of quantitative models
            • Quality of the assets included in a securitization
            • Appropriateness of selected peer-group comparisons
          • Can base decisions only on the information available at the time the decision is made. The steps taken in developing a diligent and reasonable recommendation should minimize unexpected downside events
        • Using Secondary or Third-Party Research
          • Criteria in forming an opinion on whether research is sound include
            • Assumptions used
            • Rigor of the analysis performed
            • Date/timeliness of the research
            • Evaluation of objectivity and independence of recommendations
          • If rely on secondary or third-party research, must make reasonable and diligent efforts to determine whether it is sound
          • May rely on others in the firm to determine soundness and use the information in good faith assuming the due diligence process was deemed adequate
          • The sources of the information and data will influence the level of the review a member or candidate must undertake. Information and data taken from internet sources likely require a greater level of review than information from more established research organizations
          • Should verify that the firm has a policy about the timely and consistent review of approved research providers to ensure the quality of the research
          • If such policy not in place, should encourage development and adoption
        • Using Quantitatively Oriented Research
          • Need to have an understanding of the parameters used in the model or quantitative research
          • Although not required to be experts in technical aspects of the models, must understand the assumptions and limitations inherent in any model and how the results were used in the decision-making process
        • Developing Quantitatively Oriented Research
          • Individuals who create new quantitative models and services must exhibit a higher level of diligence in reviewing new products than the individuals who ultimately use the analytical output
            • Members and candidates involved in the development and oversight of quantitatively oriented models, methods, and algorithms must understand the technical aspects of the products they provide to clients
            • A thorough testing of the model and resulting analysis should be completed prior to product distribution
          • Need to consider the time horizon of data input in financial models
          • In development of a recommendation, may need to test the models by using volatility and performance expectations that represent scenarios outside the observable databases
          • In reviewing computer models or the resulting output, pay attention to the assumptions and rigor of the analysis to ensure that the model incorporates negative market events
        • Group Research and Decision Making
          • Why adopt external advisers and subadvisers: The progression of financial instruments and allocation techniques leads to the use of specialized managers to invest in specific asset classes that complement the firm's in- house expertise
          • Standardized criteria for reviewing external advisers include, but not be limited to:
            • Reviewing the adviser's established code of ethics
            • Understanding the adviser's compliance and internal control procedures
            • Assessing the quality of the published return information
            • Reviewing the adviser's adherence to its stated strategy
          • The conclusions or recommendations of the group report represent the consensus of the group, but may not necessarily be the views of the member or candidate, even though his name is included on the report
          • If the consensus opinion has a reasonable and adequate basis and is independent and objective, need not decline to be identified with the report, even if it does not reflect his opinion
          • Always recommend "hot" issue indicates NO reasonable basis
      • Recommended Procedures
        • Establish a policy requiring that research reports, credit ratings, and investment recommendations have a basis that can be substantiated as reasonable and adequate
        • Develop detailed, written guidance for analysts and review committees for judging reasonable and adequate basis of a particular recommendation
        • Develop measurable criteria for assessing the quality of research, the reasonableness and adequacy of the basis for any recommendation or rating, and the accuracy of recommendations over time
        • Develop detailed, written guidance that establishes minimum levels of scenario testing of all computer-based models used in developing, rating, and evaluating financial instruments
        • Develop measurable criteria for assessing outside providers including
          • The quality of information being provided
          • The reasonableness and adequacy of the provider's collection practices
          • The accuracy of the information over time
        • Adopt a standardized set of criteria for evaluating the adequacy of external advisers. The policy should include how often and on what basis the allocation of funds to the adviser will be reviewed
    • 与顾客和潜在顾客的交流 (communications with clients andprospective clients)
      • Content
        • Disclose the basic format and general principles of the investment processes used to analyze investments, select securities, and construct portfolios and must promptly disclose any changes that might materially affect those processes
        • Disclose to clients and prospective clients significant limitations and risks associated with the investment process
        • Use reasonable judgment in identifying which factors are important to their investment analyses, recommendations, or actions and include those factors in communications with clients and prospective clients
        • Distinguish between fact and opinion in the presentation of investment analysis and recommendations:
          • "will be…" → fact
          • "may be…" → opinion
      • Guidance
        • Informing Clients of the Investment Process
          • Keep clients informed on an ongoing basis about changes to the investment process
          • Understanding the basic characteristics of an investment is important in judging suitability on a stand-alone basis, it's especially important in determining the impact each investment will have on the characteristics of a portfolio
          • Should inform clients about the specialization or diversification expertise of external advisers
        • Different Forms of Communication
          • When providing information to clients through new technologies, you should take reasonable steps to ensure that such delivery would treat all clients fairly
          • If recommendations are in capsule form (such as a recommended stock list), should notify clients that additional information and analyses are available upon request
        • Identifying Risk and Limitations of Analysis
          • Members and candidates must outline to clients and prospective clients significant risks and limitations of the analysis contained in their investment products or recommendations
          • The type and nature of significant risks will depend on the investment process that members and candidates are following and on the personal circumstances of the client
        • Distinction between Facts and Opinions in Reports
          • In general, the use of leverage constitutes a significant risk and should be disclosed
          • Adequately disclose the general market-related risks
          • Risks associated with the use of complex financial instruments that are deemed significant
          • Other types of risks that members and candidates may consider disclosing include but are not limited to
            • Counterparty risk
            • Country risk
            • Sector or industry risk
            • Security-specific risk
            • Credit risk
          • Examples
            • Liquidity: the ability to liquidate an investment on a timely basis at a reasonable cost
            • Capacity: the investment amount beyond which returns will be negatively affected by new investments
        • Report Presentation
          • The member or candidate who prepares the report must include those elements that are important to the analysis and conclusions of the report so that the reader can follow and challenge the report's reasoning
          • A report writer who has done adequate investigation may emphasize certain areas, touch briefly on others, and omit certain aspects deemed unimportant as long as the analyst clearly stipulates the limits to the scope of the report
          • Investment advice based on quantitative research and analysis must be supported by readily available reference material and should be applied in a manner consistent with previously applied methodology.
            • If changes in methodology are made, they should be highlighted
      • Recommended Procedures
        • Changes in investment style, investment committee and ceilings for investment universe should be disclosed to clients and prospect clients
        • Because the selection of relevant factors is an analytical skill, determination of whether analysts have used reasonable judgment on selection of factors depends on case-by-case review rather than a specific checklist
    • 记录保存 (record retention)
      • Content: You must develop and maintain appropriate records to support their investment-related communications with clients and prospective clients
      • Guidance
        • Records Are Property of the Firm
          • Records may be maintained either in hard copy or electronic form
          • Records created in professional activities are the property of the firm. When leaving the firm, cannot take those records, including originals or copies of supporting records of his work, to the new employer without the express consent of the previous employer
          • Cannot use historical recommendations or research reports created at the previous firm because the supporting documentation is unavailable
          • For future use, must re-create the supporting records at the new firm through public sources, or directly from covered company, and not from memory or sources through previous employer unless with permission
        • New Media Records
          • You should understand that employers and local regulators are developing digital media retention policies, but these policies may lag behind the advent of new communication channels
          • Such lag places greater responsibility on the individual for ensuring that all relevant information is retained
        • Local Requirements
          • Fulfilling local regulatory requirements also may satisfy the requirements of Standard V(C), but should explicitly determine whether it does
          • If no regulatory guidance in place, CFA Institute recommends maintaining records for at least 7 years. If there is a legal requirement for retention period, follow the legal requirement
      • Recommended Procedures
        • The responsibility to maintain records that support investment action generally falls with the firm rather than individuals
        • Must archive research notes and other documents, either electronically or in hard copy, that support their current investment-related communications
  • 利益冲突 (conflicts of interest)
    • 披露利益冲突 (disclosure of conflicts)
      • Content
        • Members and Candidates must make full and fair disclosure of all matters that could reasonably be expected to impair their independence and objectivity or interfere with respective duties to their clients, prospective clients, and their employer
        • Must ensure that such disclosures are prominent, are delivered in plain language, and communicate the relevant information effectively
          • Best practice: update disclosures when the nature of a conflict of interest changes materially
        • If an analyst was asked to cover the company, when inherit the shares of the company in subject
          • Must disclose if continue to follow
          • Best practice: assign another analyst to follow up the company
      • Guidance
        • Disclosure to Employers
          • Restrict personal trading, outside board membership, and related activities to prevent situations that could give the appearance of a conflict of interest
          • If inadvertently find conflicts, must report and resolve as quickly and effectively as possible
        • Disclosure to Clients
          • Corporate financing or market making relationship
          • Security holding
          • Directorship
          • Individual relationship
          • Fee arrangements
          • Subadvisory arrangements or situations involving nonstandard fee structures
          • Arrangements in which the firm benefits directly from recommendations
        • Cross-Departmental Conflicts
          • 和内部的矛盾（研究部与投行部）
          • 和外部的矛盾（和上市公司之间）
          • Broker-sponsored limited partnerships to invest venture capital
        • Conflicts with Stock Ownership
          • May prohibit from owning any such securities
          • Sell-side disclose ownership in stock recommended, buy-side disclose procedures for reporting requirements for personal transactions
        • Conflicts as a Director
          • Duties owed to clients and to shareholders of the company
          • Investment personnel as a director receive the securities or options
          • Board service receiving MNI
      • Recommended Procedures
        • Disclosure of performance arrangement
          • Firms are encouraged to include information on compensation package in firms' promotional literature
          • If fee based on capital gains or capital appreciation (performance fee), should disclose
          • If outstanding options exist for incentives, should disclose the amount and expiration date of these options as a footnote to any research report published
        • Incentive fees should not be in conflict with the interests of clients
          • If Yes, should disclose to clients
          • If employer not permit disclosure, should dissociate, or quit the job
    • 交易优先顺序 (priority of transaction)
      • Content
        • Investment transactions for clients and employers must have priority over investment transactions in which a Member or Candidate is the beneficial owner
        • Client > employer > individual
        • After 7 minutes, buy, it's a violation. Must have enough time to let clients have opportunities to respond to your recommendation
      • Guidance
        • Avoiding Potential Conflicts: Although conflicts of interest exist, it's OK for individual managers, advisers, or fund employees making money from personal investments as long as
          • The client is not disadvantaged by the trade
          • The investment professional does not benefit personally from trades undertaken for clients
          • Comply with applicable regulatory requirements
        • Personal Trading Secondary to Trading for Clients: Some clients in certain investment situations require investment personnel to have aligned interests, but mustn't adversely affect client investment
        • Standards for Nonpublic Information: Prohibit from conveying nonpublic information to any person whose relationship to the member or candidate makes him a beneficial owner of the person's securities. Must not convey this information to any other person if the nonpublic information can be deemed material
        • Impact on All Accounts with Beneficial Ownership
          • Personal transactions include those for own account, for family (including immediate family members) accounts, and for accounts of direct or indirect pecuniary interest
          • Disadvantage parents who are normal fee-paying clients: violate III (B) fair dealing
          • If have beneficial ownership in the account, may be subject to preclearance or reporting requirements of the employer or applicable law
      • Recommended Procedures
        • Limited participation in equity IPOs
        • Restrictions on private placement
        • Establish blackout/restricted periods
        • Should have reporting procedures for investment personnel, including:
          • Disclosure of personal holdings/beneficial ownerships at least annually
          • Duplication of confirmations of trades to firm and employee
          • Preclearance of participation in IPOs
        • Once trading restrictions are in place, must be enforced
        • Best method for monitoring and enforcing procedures is through reporting requirements
        • Disclosures of policies
    • 披露介绍费 (referral fees)
      • Content: You must disclose to their employer, clients, and prospective clients, as appropriate, any compensation, consideration, or benefit received from, or paid to, others for the recommendation of products or services
      • Guidance
        • Such disclosure will allow the client or employer to evaluate
          • Any partiality shown in any recommendation of services
          • The full cost of the service
        • Disclose nature of consideration
      • Recommended Procedures
        • Encourage employers to develop procedures for referral fees
        • Firm may completely restrict such fees; if not restrict, should indicate the appropriate steps for requesting approval
        • Employers should have investment professionals provide to the clients notification of approved referral fee programs and provide the employer regular (at least quarterly) updates on the amount and nature of compensation received
  • 作为CFA协会成员或者考生的责任 (responsibilities as a CFA institute member or CFA candidate)
    • 会员和考生行为 (conduct as participants in the CFA program)
      • Content
        • You must not engage in any conduct that compromises the reputation or integrity of CFA Institute or the CFA designation or the integrity, validity, or security of the CFA Institute programs
        • Conduct covered includes but is not limited to
          • Giving or receiving assistance (cheating) on any other CFA Institute examination
          • Violating the rules and policies of the CFA Program related to exam administration
          • Providing confidential program or exam information to candidates or the public
          • Disregarding or attempting to circumvent security measures established by CFA Institute for the CFA exam
          • Improperly using an association with CFA Institute to further personal or professional goals
          • Misrepresenting information on the Professional Conduct Statement or in the CFA Institute Continuing Education Program
      • Guidance
        • Confidential Program Information: CFA Institute prohibits candidates from disclosing confidential material gained during the exam process
        • Additional CFA Program Restrictions: Violating any of the testing policies, such as the calculator policy, personal belongings policy, or the Candidate Pledge, constitutes a violation of Standard VII(A)
        • Expressing an Opinion: Expressing opinions regarding the CFA Program or CFA Institute is OK
    • 提及CFA协会、CFA名衔和CFA考试 (reference to CFA Institute, the CFA designation and the CFA program)
      • Content
        • When referring to CFA Institute, CFA Institute membership, the CFA designation, or candidacy in the CFA Program, You must not misrepresent or exaggerate the meaning or implications of membership in CFA Institute, holding the CFA designation, or candidacy in the CFA Program
        • How to use CFA
          • adj, not n.
          • Always capitalized
          • CFA level Ⅰ ×
          • C.F.A ×
          • Don't alter to create new words or phrases
          • Mustn't be used as part of the name of a firm.
          • Shouldn't be given more prominence（e.g. larger, bold）than the charter holder's name
        • Mustn't cite the expected date of exam completion and award of charter
        • A candidate who has passed level III but has not received charter can’t use CFA designation
        • In citing the designation in a resume, a charterholder should use the date that he or she received the designation and should cite CFA institute as the conferring body
        • It's only appropriate to use CFA logo on the business card or letterhead of each individual CFA charterholder. Candidates can mention in their C.V
        • The order of CFA and CPA doesn't matter
      • Guidance
        • Once accepted as a member, must satisfy the followings to maintain status
          • Remit annually to CFA Institute a complete Professional Conduct Statement
          • Pay membership dues annually
        • Using CFA Designation: If a charterholder fails to meet membership requirements, he forfeits the right to use CFA designation. Until membership is reactivated, can only state that they were charterholders in the past
        • Referring to candidacy
          • When can you state yourself as a candidate
            • After receiving registration acceptance letter by CFA Institute
            • Before exam results have been received
          • If a candidate passes each level of the exam on the first try and wants to state that he or she did so, that is not a violation because it is a statement of fact, but must not over-promise the competency and future investment results
      • Recommended procedures
        • Should disseminate written information and the accompanying guidance to legal, compliance, public relations, and marketing departments
        • Should encourage firms to create templates that are approved by a central authority (such as the compliance department) as being consistent with VII(B)
• Introduction to the Global Investment Performance Standards (GIPS)
  • Definition: GIPS are a set of ethical principles based on a standardized, industry-wide approach
  • Misleading practices that hinder performance comparability
    • Representative accounts: showing a top-performing portfolio as representative of a firm's result
    • Survivorship Bias: excluding "weak performance" accounts that have been terminated
    • Varying Time Periods: showing performance for selected time periods with outstanding returns
  • Who can claim compliance
    • Complying with the GIPS standards is voluntary
    • Only an investment management firm that actually manage assets can claim compliance with the Standards
      • Plan sponsors & consultants → can't claim compliance unless actually manage assets
      • Software (and vendor of software) cannot be compliant → can assist firms in compliance with GIPS
    • Firm-wide and full compliance
      • Can't be achieved on a single product or composite
      • Two options
        • Fully comply with all requirements
        • Not comply with all requirements and not claim compliance
  • Who benefits from compliance
    • For firms
      • Can assure prospective clients that their track record is complete and fairly presented
      • Able to participate in competitive bids against other compliant firms throughout the world
      • Strengthen firm's internal control over performance-related processes
    • For investors
      • Have greater confidence in the integrity of performance presentation of a compliant firm, and can easily compare performance presentation from different firms
      • Compliance enhances the credibility of firms
  • Composites
    • A composite is a grouping of individual discretionary portfolios representing a similar investment strategy, objective, or mandate
    • A composite, such as Global Equities, must include all portfolios (current and past) that the firm has managed in accordance with this particular strategy
    • The firm should identify which composite each managed portfolio is to be included in before the portfolio's performance is known
    • This prevents firms from choosing portfolios to include in a composite in order to create composites with superior returns
  • Verification
    • Definition: Verification is the review of an investment management firm's performance measurement processes and procedures by an independent third-party "verifier"
    • Verification tests
      • Whether the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis
      • Whether the firm's processes and procedures are designed to calculate and present performance results in compliance with the GIPS standards
    • A single verification report is issued in respect of the whole firm; verification cannot be carried out for a single composite
  • Definition of Firm
    • The definition should reflect the "distinct business entity" that is held out to clients and prospects as the investment firm
    • GIPS are ethical standards for performance presentation which ensure fair representation of results and full disclosure
  • Key characteristics
    • Include all actual fee-paying, discretionary portfolios in composites for a minimum of 5 years or since firm or composite inception
    • After presenting five years of compliant data, the firm must add annual performance each year going forward up to a minimum of 10 years
    • No partial compliance and only full compliance can be claimed
    • Firms are required to use certain calculation and presentation standards and make specific disclosures
    • GIPS contain both required and recommended provisions
    • Follow the local laws for cases in which a local or country-specific law or regulation conflicts with GIPS, but disclose the conflict
  • Nine major sections of GIPS
    • Fundamentals of compliance
      • Firms must make every reasonable effort to provide a compliant presentation to all prospective clients. Must not choose to whom they present a compliant presentation. As long as a prospective client has received a compliant presentation within the previous 12 months, the firm has met this requirement
      • Valuation hierarchy
        • market price
        • market price for similar investment
        • market-based inputs for pricing the investment
        • subjective unobservable inputs for pricing the investment
    • Input data
    • Calculation methodology
    • Composite construction
    • Disclosure
    • Presentation and reporting
    • Real estate
    • Private equity
    • Wrap fee/Separately Managed Account Portfolios
• Ethics Application