Code of Ethics and Standards

Question 1

7 Standards of Professional Conduct

Answer 1

1. Professionalism,
2. Integrity to Capital Markets,0
3. Duty to Clients,
4. Duty to Employers,
5. Investment Analysis Recommendations &Action,
6. Conflict of Interest,
7. Responsibilities of a CFA Candidate

Question 2

NS, LS & MS

Answer 2

No Securities, laws or regulations
Less Strict laws than the Code & Standard
More Strict than the Code and Standard

Question 3

Independence & Subjectivity Explained

Answer 3

Members and Candidates 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.

Question 4

I-C: Misrepresentation, public information

Answer 4

Public financial data does not have to be acknowleged

Question 5

I-D: Misconduct, 3 applications

Answer 5

1. dont rely on an individual supervisors judgement
2. No conviction does not mean no misconduct
3. Misconduct can happen even if engaged in charitable causes

Question 6

Standard #I

Answer 6

Professionalism

Question 7

Standard #II

Answer 7

Integrity of Capital Markets

Question 8

What is “Material” informaton?

Answer 8

Informatioon that would probably have an impact on the price of a security or if investors would want to know that info before making a decision

Question 9

Define “Dissemination”

Answer 9

“To be made known to”

Question 10

Mosaic Theory

Answer 10

Involves collecting public, non-public, and non-material information about a company. All information found this way must be doccumented.

Question 11

Standard II-A

Answer 11

Material Non-Public Information

Question 12

Standard II-B

Answer 12

Market Manipulation

Question 13

Define “Firewall”

Answer 13

An information barrier used to prevent communication of material, non-public information. A “firewall” should exist between commercial lending and trust and research departments

Question 14

Primary Objective of a Firewall

Answer 14

To establish a system in which authorized people review and approve communication between department (such as commercial and research) to remail compliant with II-A (material non-public info)

Question 15

Define “Market Maker”

Answer 15

A broker-dealer firm that holds shares of a security in order to facilitate its trading. Nasdaq is a prime example.

Question 16

Arbitrage

Answer 16

Involves simultaneous buying and selling of an asset to profit from small pricing differences. This often occurs on different markets ie. NYSE or

Question 17

Standard #III

Answer 17

Duty to Clients

Question 18

Standard #IV

Answer 18

Duty to Employers

Question 19

Standard #V

Answer 19

Analysis, Recommendations & Advice

Question 20

Standard # VI

Answer 20

Conflict of Interest

Question 21

Standard # VII

Answer 21

Responsibilities of a CFA Candidate

Question 22

Proprietary Trading

Answer 22

When a firm trades for direct gain instead of commission dollars. The firm has decided to profit from the market instead of from commissions

Question 23

Define “Market Manipulation”

Answer 23

1) Dissemination of false or misleading info and 2) transactions that deceive or would be likely to mislead market participants

Question 24

Information Based Manipulation

Answer 24

Spreading false rumors to induce other to trade a certain way

Question 25

Transaction Based Manipulation

Answer 25

Includes securing a dominant position in a security to exploit and manipulate the price and/or transactions that artifically affect price or volumes to give the impresion or activity or price movement.

Question 26

Standard III-A

Answer 26

Loyalty, Prudence and Care

Question 27

Standard III-B

Answer 27

Fair Dealing

Question 28

Standard III-C

Answer 28

Suitability

Question 29

Standard III-D

Answer 29

Performance Presentation

Question 30

Standard III-E

Answer 30

Preservation of Confidentiality

Question 31

Standard IV-A

Answer 31

Loyalty to Employers

Question 32

Standard IV-B

Answer 32

Compensation Arrangements

Question 33

Standard IV-C

Answer 33

Responsibilities of Supervisors

Question 34

“Soft Commission Policies”

Answer 34

Whenever a manager uses client brokerage to purchase research that doesn’t not benefit the client, but instead the manager. Is in Violation of Standard III-A (Duty to Clients: Loyalty, Prudence & Care)

Question 35

“Best Execution”

Answer 35

A trading process that seeks to maximize the clients portfolio within the stated objectives and other various constraints

Question 36

Standard III-A (Loyalty, Prudence & Care) Compliance

Answer 36

provide clients with an itemized statement at least quarterly

Question 37

Define Stockbroker

Answer 37

The firm that acts as an agent for a customer, charging a commission for its services. Schwab is my stockbroker

Question 38

“Hot Issue”

Answer 38

An issue (generally an IPO) that sells at a premium over the public offering price. Historically hot issue IPO’s (see internet bubble) will fall dramatically after shooting up.

Question 39

“Whisper Number”

Answer 39

Rumored price of a security

Question 40

“IPS”

Answer 40

Investment Policy Statement

Question 41

6 Components of Ethics (PEMJAR)

Answer 41

Priority
Encourage
Judgement
Maintain
Actions
Rules

Question 42

Gift Limits and Which Guideline?

Answer 42

Max Gift Value is generally $100,

Independance and Objectivity.