CFA LEVEL1 道德部分要点整理.docx

LOS1.a: Describe the structure of the CFA Institute Professional Conduct Program and the process of the enforcement of the Code and Standards.Several circumstances prompt an inquiry:1) self-disclosure by members or candidates on annual Professional Conduct Statement of involvement in civil litigation or a criminal investigation, or that the member or candidate is the subject of a written complaint.2) written complaints about a member or candidates professional conduct that are received by the Professional Conduct Staff.3) Evidence of misconduct by a member or candidate that the Professional Conduct staff received through public sources4) A report by a CFA exam proctor of a possible violation during the examinationOnce an inquiry begins, may 1) request (in writing) an explanation from the subject member or candidate, & may:2) interview the subject member or candidate; 3) interview the complainant or other third parties; 4) collect documents and records relevant to the investigation.Possible decision of Designated Officer: 1) no disciplinary sanctions are appropriate, 2) to issue a cautionary letter 3) to discipline the member or candidate = subject member or candidate can accept or reject the sanction, if reject, the matter will be referred to a panel of CFA institute members for a hearing. Sanctions imposed may include condemnation by the members peers or suspension of candidates continued participation in the CFA Program.LOS1.b: State the six components of the Code of Ethics and the seven standards of Professional Conduct.Code of Ethics1) Act with integrity, competence, diligence, 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.2) Place the integrity of the investment profession and the interests of clients above their own interests.3) Use reasonable care and exercise independent professional judgment when conducting investment analysis, making investment recommendations, taking investment actions, and engaging in other professional activities4) Practice and encourage others to practice in a professional and ethical manner that will reflect credit on themselves and the profession.5) Promote the integrity of, and uphold the rules governing capital markets6) Maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals. The Standards of Professional Conduct1) Professionalism2) Integrity of Capital Markets3) Duties to Clients4) Duties to Employers5) Investment Analysis, Recommendations, and Actions 6) Conflicts of Interest7) Responsibilities as a CFA Institute Member of CFA candidateLOS1. c: Explain the ethical responsibilities required by the Code and Standards, including the sub-sections of each Standard.Professionalism: 1) knowledge of the Law: Conflict? = comply with the more strict law 2) independence and objectivity: use reasonable care and exercise independent professional judgment, no offer, solicit, accept any gift, benefit, compensation or consideration 3) misrepresentation 4) misconduct (dishonesty, fraud, deceit, commit )Integrity of capital markets 1) Material Nonpublic Information 2) Market Manipulation: distort prices or artificially inflate trading volume with the intent to mislead market participants.Duties to clients 1) Loyalty, prudence, and care. 2) Fair dealing 3) Suitability: i) advisory: 1inquiry into clients investment experience, risk and return objectives, and financial constraints prior to making any investment recommendation or taking investment action and must reassess and update this info regularly. 2 determine the suitability of investment to clients financial situation and consistent with written objectives, mandates, and constraints 3 judge the suitability of investment in the context of clients total portfolio. ii) managing portfolio to a specific mandate, strategy, or style 4) Performance presentation: investment performance info must be fair, accurate and complete 5) Preservation of Confidentiality unless: illegal activities on the part of client; disclosure is required by law; or client permits disclosure.Duties to employers 1) Loyalty 2) Additional compensation arrangements (gifts, benefits, compensation, or consideration that competes with employer 3) Responsibilities of supervisorsInvestment analysis, recommendations, and actions 1) diligence and reasonable basis (e.g. research) 2) communication with clients and prospective clients: disclosure to clients the basic format and general principles of investment processes; identification of important factors for investment analyses; distinguish between fact and opinion in the presentation of investment analysis and recommendations 3) Record retentionConflicts of interest 1) disclosure of conflicts 2) Priority of Transactions 3) Referral feesResponsibilities as a CFA institute member or candidate 1) Conduct as members & candidates in the CFA program 2) Reference to CFA institute Summary from examples: Professionalism1) Regular procedures for an employee when finds some misconducts or violations: report to supervisor, if not solved = seek independent legal opinion, if not solved = dissociate from the misconducts anyway.2) Comply with more strict laws or regulations of country of origin and country in which business is conducted.No requirement under standards to report violations to governmental authorities but may be required to report in some circumstances or by laws in others.Only reliance on legal department doesnt absolve a member or candidate from the requirement to comply with the law or regulation, one should report the situation to supervisor and seek an independent legal opinion to decide whether the regulator should be notified or not.Independence and Objectivity1) Aware of any possible bribe any corruption from an interested party to members/candidates that should act independently and objectively by themselves. 2) Better to avoid appearance of any conflict of interest, but analysts can make own judgments on acceptance travel and accommodation pay based on requirement that their objectivity and independence are not impinged or compromised. Such payments from clients not necessarily violations.3) Members should be sensitive to the public perception and avoid any perception of likely conflict of interest even though theres no. Modest gifts (token items only) are permitted, allocation of shares in oversubscribed IPOs to personal accounts is NOT permitted. Do not let investment process be influenced by external resources. Gifts must be disclosed to employer in any case, either prior to acceptance if possible, or subsequently.Restrict employee investments in equity IPOs and private placements, require pre-approval of IPO purchases.The reason for both disclosure and permission requirements of gifts is that the employer must ensure that employee does not give advantage to the client giving or offering additional compensation, to the detriment of other clients.* An analyst performing sensitivity analysis for a security does not use only scenarios consistent with recent trends and historical norms. = This is a good thing and not a violation.Misrepresentation (or give false impressions) - foundation in the investment professioninclude oral or electronic communications - guaranteeing investment performance- plagiarism (reports, forecasts, models, ideas, charts, graphs, spreadsheet models)- knowingly omitting information that could affect an investment decision (e.g. pretend to be independent analyst but indeed employed by target company)Models and analysis developed by firm can be used without attribution. A report written by another analyst employed by the firm cannot be released as another analysts cedures for compliance: - qualifications accurately presented; - materials recorded with sources cited; - establish procedures of verifying marketing claims of third parties whose info the firm provides to clients.* Description of bank CD as guaranteed is not a violation.* Even word-by-word definition of terms found online should cite sources * Cite both directly and indirectly referred sources or cite directly reference obtained from origin.Misconduct ( 关乎个人品行的)Any act reflects adversely on professional reputation, integrity or competence. e.g.: excessive drinking before investment decision.Integrity of Capital Markets (inside information)Material Nonpublic information: if affect the value of investment, cannot act or cause others to act on the info. Selectively disclosing info by corporations creates the potential for insider-trading violations.Info is material if its disclosure would impact the price of a security or if reasonable investors would want the information before making an investment decision. Ambiguous info, as far as its likely effect on price, may not be considered material.- Guidance - Mosaic Theory: There is no violation when a perceptive analyst reaches an investment conclusion about a corporation or event through an analysis of public information together with items of nonmaterial nonpublic info (e.g. market opinion of products)- monitor and restrict proprietary trading while a firm is in possession of material nonpublic information. Prohibition of all proprietary trading may be inappropriate because it may send a signal to the market. In these cases, firms should take the contra side of only unsolicited customer trades. ?* Trading stocks based on nonpublic info provided by someone who has power to influence the stock price is a violation. * priority of transactions by front-running client tradeMarket manipulation (distort prices or artificially inflate trading volume with intent to mislead market participants)- distorting price-setting mechanism- securing a controlling position to manipulate the price- spreading rumors* Formal liquidity on a market is determined by the obligations set on market makers, but the actual liquidity of a market is better estimated by the actual trading volume and bid-ask spreads.liquidity pumping strategy must be disclosed.Duties to clients- loyalty, prudence and care to beneficiaries be represented.fair deal, best price and execution for clientscompliance: Submit to clients, at least quarterly, itemized statements showing all securities in custody and all debits, credits, and transactions.- fair dealing (fairly is not equally, different service levels shall be disclosed, individual and institutional clients treated fairly, cannot take advantage of position in industry to disadvantage clients, e.g. IPO)do not discriminate against any clientA reason of minimum lot size to deviate from a strict pro rata allocation to client is not violation of fair dealingSuitabilityclient information gathering: needs, circumstances, risk tolerance, use of leverage or not, consistent to stated mandateswritten in IPS(investment policy statement)focus characteristics of clients entire portfolio and give thorough explanations of investment recommendation to clientsPerformance Presentation - members must make detailed information available on request and indicate that the presentation has offered limited info- considering the sophistication of audience to whom the presentation is addressed; presenting performance of weighted composite of similar portfolios rather than a single account. - terminated accounts; all appropriate disclosures to fully explain results: model results, gross or net of fees, etc.)- maintaining data & records used to calculate the performance being presented.- the source of historical performance should be fully disclosed.Preservation of Confidentiality - do not divulge- avoid disclosing info received from a client except to authorized co-workers who are also working for the client.* Check with compliance department and outside counsel to determine whether applicable securities regulations require reporting clients financial records if find any suspicious corruption, embezzlement of client * If find client violating law, report to supervisor and try to end this illegal activity; if fail, seek legal advice about any disclosure should be made to legal or regulatory authorities and dissociate from any continuing association Duties to EmployersLoyalty - Always place clients interest above employers but consider the effects of their actions on firm integrity and sustainability - Not required that employee puts employer interest ahead of family and other personal obligations; its expected that employer and employees discuss such matters and balance these obligations and work obligations. - Independent practice for compensation is allowed if a notification is provided to the employer fully describing all aspects of the services, including compensation, duration, and the nature of the activities and if the employer consents to all terms of the proposed independent practice before it begins. - must continue to act in employers best interest until resignation is effective. violations: misappropriation of trade secrets; misuse of confidential info; soliciting employers clients prior to leaving; self-dealing; misappropriation of client list (once an employee leaves a firm, the simple knowledge of names and existence of former clients is generally not confidential, theres no prohibition on the use of experience or knowledge gained while with a former employer)? - employee vs. independent contractor: still have a duty to abide by the agreement* Taking any employer records, even those the member or candidate prepared, violates standard* The Code and Standards do not prohibit former employees from contacting clients of their previous firm, absent a non-compete agreement.* Employee-led buyout of employers business is not violation. Employer can decide how to respond to any buyout offer. If such a buyout takes place, clients should be informed of the nature of the changes in a timely manner.* Contractor: current employer has first right to act on contractors work* Full-time employee serving as mayor does not conflict with employers business interest, as long as the time commitment does not preclude performing his expected job functions well, theres no violation.Additional Compensation Arrangements - Written consent from employer includes e-mail communication. details including any performance incentives should be verified by the offering party.Responsibilities of Supervisors - prevent employees from violating; detect violations; enforce firm policies regarding investment or non-investing behaviors equally- If there is violation, respond promptly and conduct a thorough investigation while placing limitations on the wrongdoers activities.* supervise reasonably and adequately the actions accountable to supervisors. e.g. disemmination of unpublished changes in recommendationInvestment Analysis, Recommendations, and Actions1) Diligence and Reasonable Basis -depends on the investment philosophy adhered to , members and candidates roles in the investment decision-making process, and the resources and support provided by employers= degree of diligence, thoroughness of research, and the proper level of investigation required. -Reasonable basis: 1 a firms financial results, operating history, and business cycle stage 2fees and historical results for a mutual funds 3limitations of any quantitative models used 4a determination of whether peer group comparisons for valuation are appropriate. - using secondary or third-party research, criteria: 1review assumptions used 2analysis rigorous? 3timely? 4objectivity and independence of the recommendations - quantitative research: able to explain the basic nature of quantitative research and how it is used to make investment decisions. consider scenarios outside those typically used to assess downside risk and the time horizon of the data used for model evaluation to ensure both positive and negative cycle results have been considered. - external advisor: 2adequate compliance and internal controls? 2present returns info correct 3do not deviate from stated strategies - group research and decision making: member who does not agree with view of group, not necessarily decline to be identified with the report.* Bad outcome of recommendation does not mean there has necessarily been a violation, as long as the member performs reasonable due diligence and discloses investment risk adequately.2) communication with clients - disclose to clients the basic format and general principle of investment processes; identifying important factors in investment; distinguish between fact and opinion in the presentation of investment analysis and recommendations - maintain records of communication and be able to supply additional info if requested - member should notify clients immediately of changes in the firms investment process, not notify only in annual reports3) record retention records are property of firm, if no regulatory standards, CFAI recommends at least 7-year holding period.Conflicts of interest1) disclosure of conflicts - actual ownership of shares recommended; members compensation/bonus structure which can potentially create incentives to take actions that produce immediate gains for the member with little or no concern for long-term returns for the client; give the employer enough information to judge the impact of the conflict. Take reasonable steps to avoid conflicts and report them promptly i