Chapter 8: Ethics as contained in the code of conduct if SAIFM

Question 1

Mary is a trader. She becomes aware that her colleagues are contravening legislation by manipulating the financial markets. What is she obliged to do from an ethical point of view?

Answer 1

Report the matter to the exchange concerned or the FSB.

Question 2

Peter is a stockbroker who manages the portfolios of a couple of clients. Peter’s boss, Lindiwe is unhappy with him because he does not generate enough fees for the firm. Peter decides to buy and sell more investments in his clients’ portfolios to generate some additional income. Is this ethical in terms of the code of conduct?

Answer 2

No, it amounts to churning and is unethical.

Question 3

Describe the requirements for promotional material as set out in the Code of Ethics.

Answer 3

No trader or investment manager may use promotional material which
 is likely to deceive the public;
 contains any material misstatement of fact, or omits a fact if the omission renders the promotional material misleading;
 mentions the possibility of profit unless accompanied by an equally prominent statement of the risk of loss;
 includes any reference to either hypothetical results or to the actual past trading profits without mentioning that these hypothetical or past results are not necessarily indicative of the future results; or
 includes any specific numerical or statistical information about the past performance of any actual accounts (including rate of return) unless such information is, and can be demonstrated to be, representative.

Question 4

In terms of the Code of Ethics, what should a stockbroker who manages a client’s portfolio take into consideration to establish the suitability of an investment?

Answer 4

The following should be taken into consideration:
 the needs and circumstances of the client;
 the basic characteristics of the investment involved;
 the basic characteristics of the total portfolio; and
 the potential risks of loss involved.