2023_CFA_1级_Ethics_道德

2023, CFA, 1级, Ethics, 道德，如Global Investment Performance Standards (GIPS)： only firm managing assets can claim firm-wide and full compliance voluntary follow local law but disclose the conflict

Ethics

• Professionalism
  • Knowledge of the law
    • know
      • not expert
      • comply with law directly governing
    • strict
      • law or CFA standards
    • identify
      • confirm
        • dissociate
        • report
          • supervisor -> compliance -> dissociate -> resign
      • suspect
        • consult
        • cannot be absolved from requirements to compliance
    • cultural and religious laws
    • use of social media
      • comply with new guidance and regulation governing
  • Independence and objectivity
    • Gift
      • Best practice
        • reject
      • from subject company (to research)
        • modest and normal is OK
      • from client
        • not disclosed -> violate 1B, 4B
        • disclosed but not agree -> violate 4B, not violate 1B
    • Relationships
      • buy-side clients
        • portfolio manager to sell side analyst
      • fund manager relationship
        • hiring and retaining outside managers
      • I-bank
        • i-bank to research anlyst
      • performance measurement and attribution
        • stray from mandate
        • alter construction of composite
      • public companies
        • favorable report
      • credit rating agency opinion
      • influence during the manager selection
        • 2 sides bribery
      • Issuer-paid research
        • flat fee only
        • no bonus
      • travel funding
        • self-pay
        • modestly arranged travel
  • Mispresentation
    • not promise, unless guaranted
    • omissions
      • expected result <> fact
      • prevent cherry picking
    • performance reporting
      • if benchmark exist, align with investment style
    • Plagiarism
    • 3rd party information
      • must disclose
    • typographical error
      • ok but need to correct
    • learn from media
      • 1. verify; 2. quote
  • Misconduct
    • lying, cheating, stealing
    • negatively affects ability to perform professional activities
    • personal bankruptcy
      • violate if due to fraudulent or deceitful business conduct
    • intoxicated after lunch
      • violate
    • environmental activist
      • ok
• Integrity of capital markets
  • Material nonpublic information
    • MNI?
      • reliable source
      • clear impact
      • non-public
        • selective disclosure
    • Mosaic theory
      • material public and nonmaterial nonpublic
    • using industry experts
      • not use, not disclose
  • Market manipulation
    • info-based
      • dissemination of false or misleading info
    • transaction-based
      • affect prices or volume
    • not voilate
      • increase liquidity
      • trading strategies
      • trade for tax purposes
• Duty to clients
  • Loyalty, prudence and care
    • identify client
      • beneficiary
      • mandate
    • soft dollar
      • seek best price/execution
      • directly benefit investment
    • proxy voting policies
      • cost-benefit analysis
      • disclose proxy voting policies
    • undertanding
      • fiduciary duty
      • overhead expense -> voilate
  • Fair dealing
    • fairly <> equally
    • trade
      • pro-rata on order size, not account size
    • analyst's recommendation
      • all clients same time
      • material changes communicated to all clients
      • clients not knowing changes shall be advised
  • Suitability
    • process: know clients -> write IPS -> follow IPS
    • update IPS at least annually and prior to material changes
    • diversification
      • portfolio based but not asset based
    • manage to index or mandate
      • consistent with mandate
    • address unsolicited trade requests
      • unsolicated trade: not aligned with IPS, instructed by client
      • discuss concern first
    • covered call options in equity portfolio -> not voilate, hedge risk
  • Performance presentation
    • not misrepresent past performance
      • not state or imply to obtain past achievement
    • include terminated portfolio
    • weighted rate of return
      • not single performance
    • make detailed information available
    • apply GIPS standards
      • recommended, not must
      • if stated but not follow -> voilate
    • full disclosure
      • can cover simulation, but must disclose
    • modify performance attribution methodology without proper notification ->voilate
      • if change module, need to disclose report including reason and results
  • Preservation of confidentiality
    • keep confidential
      • exception
        • illegal acticities
        • required by law
        • client permit disclosure
    • if law requires confidentiality, even if illegal, shall not disclose
    • continue to maintain confidentiality even after relationship ended
    • social media
      • ok to open new group page on existing platform
      • cannot communicate personal or confidential information
• Duty to employers
  • Loyalty
    • on duty
      • independent practice
        • no competitive business
      • ok for non-competitive business after work
      • open company
        • can register after work
        • if competitive, cannot start business before resignation
    • leaving an employer
      • violation before leaving
        • misappropriation of trade secrets
        • misappropriation of client lists
          • memorize client list is not permitted
        • misuse of confidential information
        • solicite employer's client prior to cessation of employment
      • violation after leaving
        • violation of non-compete contract
        • can only take skills and experience
        • knowledge of names and existence of clients s not confidential
        • firm records or research shall be erased or returned
    • use of social media
      • place employer's interests first
    • part time shall also follow
    • whistleblowing -> violate
  • Additional compensation arrangements
    • disclose and get written consent
  • Responsibility of supervisors
    • prevent
      • establish P&P
      • implement education and training
      • establish incentives, mometary or otherwise, to reward ethical behavior
    • find violation
      • ensure violation will not be repeated
    • can delegate, but not relieve supervisory responsibility
    • shall establish procedures to prevent unauthorized dissemination through social media networks
• Investment
  • Diligence and reasonable basis
    • use secondary or third-party research
      • determine whether it is sound
      • cannot deliver as own
    • use quantitatively oriented research
      • not required to become experts
      • must understand assumptions and limitations
      • make reasonable efforts to test output
    • develop quantitatively oriented techniques
      • testing and result analysis before distribution
      • consider source and time horizon of data used
    • group research
      • consensus opinion has reasonable and adequate basis
      • can sign
    • always recommend "hot" means no reasonable basis
    • selection of external adviser or subadviser shall be based on complete review
    • not guarantee no down-side risk
  • Communication with clients
    • disclose format and principles of investment processes
      • notify additional information are available upon request
    • promptly disclose material changes
    • distinguish between fact and opinion
    • identify risk and limitation of analysis
      • investment liquidity and capacity
    • disclose material error
    • shall educate clients
  • Record retention
    • records in hard copy or electronic form
      • if no regulatory guidance, 7 years required by CFA
    • records are property of the firm
• Conflicts of interest
  • Disclosure of conflicts
    • full and fair disclosure
    • can put conflict of interest into restricted list
    • Example
      • sit on board of directors of subject company's subsidiaries
      • subject company is shareholder
      • wife inherits subject company's stock
      • compensation
    • not require to disclose personal/retirement investments in large diversified mutual funds
  • Priority of transaction
    • client -> employer -> individual
    • allow enough time for clients to respond
  • Referral fees
    • inform employer, clients of benefits for referrals
• Responsibility as members
  • Conduct as members and candidates
  • Reference to CFA institute designation
    • pass level III but not receive charter cannot use CFA designation
• Global Investment Performance Standards (GIPS)
  • Who
    • only firm managing assets can claim
    • firm-wide and full compliance
    • voluntary
    • follow local law but disclose the conflict
  • Verification
    • independent 3rd party to perform verification
    • verification cannot based on single composite
    • verification does not ensure accuracy
  • Composites
    • portfolios of similar investment strategy, objective or mandate
    • actual, fee-payment, discretionary portfolios must be included in at least one composite
    • non-fee-paying discretionary portfolio may be included
    • non-discretionary portfolios must not be included
    • total firm asset must aggregate fair value
  • Fundamentals of compliance
    • the firm
      • include all geographical
      • same brand name
    • discretion
      • firm's ability to implement its investment strategies
      • client-imposed is nondiscretionary