Ethics, Regulations, ESG Flashcards
Asset Manager Code (6 professional codes)
A. Loyalty to Clients B. Investment Process & Actions C. Trading D. Risk Mgt., Compliance & Support E. Performance & Valuation F. Disclosures
LOIN TRIPED
A. Loyalty to Clients
- Place client interest before their own.
- Preserve confidentiality
- Refuse to participate in any business relationship/accept gift that could be reasonably expected to affect independence, objectivity, or loyalty to clients
B. Investment Process & Actions
- Use reasonable care and prudent judgement when managing client assets.
- Not engage in market manipulation
- Fair dealing with all clients
- Have a reasonable & adequate basis for investment decisions.
- When managing pooled assets or portfolio:
a. Take only investments that are consistent with the stated objectives and constraints of that fund
b. Provide adequate disclosures and information so investors can consider whether changes meet their investment needs. - When managing separate accounts:
a. Evaluate and understand the client’s investment objective, tolerance of risk, time horizon, liquidity needs, financial constraints etc.
b. Determine that an investment is suitable to a clients financial situation
C. Trading
- Not act or cause others to act on material nonpublic information
- Give priority to investments made on behalf of clients over those that benefit the Managers’ own interest.
- Use commissions generated from client trades to pay for only investment-related products or services that directly assist the manager in its investment decision making process, and not in the mgt. of the firm.
- Maximize client portfolio value by seeking best execution for all client transactions.
- Establish policies to ensure fair and equitable trade allocations among client accounts.
D. Risk Management, Compliance & Support
- Develop and maintain policies and procedures to ensure their activities comply with the provisions of this Code and all applicable legal and regulatory requirements.
- Appoint a compliance officer responsible for administering policies & procedures for investigating complaints regarding the conduct of the Manager or its personnel
- Ensure portfolio information provided to clients is accurate, complete and arrange for independent third-party confirmation of such information.
- Maintain records for an appropriate period of time in an easily accessible format.
- Employ qualified staff and sufficient human & technological resources.
- Establish a business continuity plan to address disaster recovery or periodic disruptions.
- Establish firm-wide risk mgt. processes that identifies, , measures, and manages risk position of the manager and its investments
E. Performance and Valuation
- Present information that is fair, accurate, relevant, timely, and complete.
- Use fair-market price to value client holdings and apply, in good faith, methods to determine fair value of securities for which no independent, third-party market quotation is readily available.
F. Disclosures
- Communicate with clients in an ongoing and timely basis.
- Ensure disclosures are truthful, accurate, complete, and understandable
- Include any material facts when making disclosures
- Disclose the following:
a. Conflicts of interests
b. Regulatory /disciplinary actions taken against Mgr.
c. Investment Process (Incl. lock-up, strategies, risks)
d. Mgt Fees, and other investment costs
e. Amount of any soft or bundled commissions
f. Performance of clients on a regular basis
g. Valuation methods
h. Shareholder voting policies
i. Trade allocation policies
j. Results of the review of an audit of the fund
k. Significant personel/organizational change
l. Risk mgt. processes
Six responsibilities according to the code
Managers must:
- Act in a professional and ethical manner at all times
- Act for the benefit of the clients
- Act with independence & objectivity
- Act with skill, competence, and diligence
- Communicate with clients in a timely and accurate manner.
- Uphold the applicable rules governing capital markets
6 Pet BISCUits
public interest theory of regulation vs. private interest theory of regulation
public: people act through government
private: regulations emanate from self-interested motivations
Financial markets regulations principles
- Trust
- Market Integrity / Fundamental fairness
- Government protection (rule of law)
SECs responsibilities
- Protect investors
- Maintaining fair, orderly financial markets
- Facilitating capital information
FINRA
Overseen by the sec and is a non-governmental, self-regulatory organization that supervises the broker-dealer industry to ensure it operates fairly and honestly.
CFTC
Oversees the derivatives market and its participants.
NFA
Oversees the futures market
Blue Sky Laws
State’s own set of securities law designed to protect state interests and prevent fraudulent activities within its borders.
Securities Act 1933 (Securities Act)
Requires registration with the SEC, unless an exemption is available
Securities Exchange Act 1934 (Exchange Act)
Provides governance of securities transactions on the secondary market
Investment Adviser Act 1940 (40’s act)
Regulates the organization of companies, including mutual funds that primarily engage in investing
Dodd-Frank Act
Enacted to promote financial stability of the US by:
- improving accountability and transparency
- to end “too big to fail”
- Protect American tax-payers by ending bail-outs
- Protect consumers from abusive financial practices
Registration requirements SEC/State
- sub $25m no registration is required
- $25-100m registration is required with State
- > $100m registration is required with SEC
Two exemptions to registration under Advisers Act often used by fund managers
- Venture capital fund adviser exemption
- Private fund adviser exemption
Twelve matters regulated under the Investment Advisers Act 1940
- Advisory agreement terms
- Performance fees
- Client solicitation
- Political contributions
- Trading practices
- Advertising
- Record-keeping
- Personal securities reporting
- Custody
- Proxy voting
- Compliance program
- Gifts & Entertainment
ICO
Initial Coin Offering (ICO): tracking asset ownership through a coin or token
