Guidance for Standards I–VII Flashcards
Standard I
Professionalism
Standard I(A)
Knowledge of the Law
Members and candidates are responsible for violations in which they _____ participate or assist
knowingly
The first step should be to attempt to stop the illegal and/or unethical behavior by _________ . If this attempt is unsuccessful, then members and candidates have a responsibility to step away and dissociate from the activity
bringing it to the attention of the employer through a supervisor or the firm’s compliance department
Member resides in MS country, does business in LS country; MS law applies, but it states that law of locality where business is conducted governs.
Member must adhere to _____
the Code and Standards
Standard I(B)
Independence and Objectivity
If the firm is unwilling to permit dissemination of
adverse opinions about a corporate client, members and candidates should ______________
Encourage the firm to remove the controversial company from the research
universe and put it on a restricted list so that the firm disseminates only factual information about the company
Standard I(C)
Misrepresentation
Standard I(D)
Misconduct
Standard II
Integrity of Capital Markets
“mosaic theory” definition
financial analysts are free to act on this collection, or mosaic, of information
without risking violation.
Standard II(A)
Material Nonpublic Information
Standard II(B)
Market Manipulation
Market manipulation includes (2)
(1) the dissemination of false or misleading information and (2) transactions that deceive or would be likely to mislead market participants
by distorting the price-setting mechanism of financial instruments
Standard III
Duties to Clients
Standard III(A)
Loyalty, Prudence, and Care
Standard III(A) \_\_\_\_ render all members and candidates fiduciaries
does not
Conflicts may arise when an investment manager uses client brokerage
to purchase research services, a practice commonly called _______
“soft dollars” or “soft commissions.”
Standard III(B)
Fair Dealing
Standard III(B) covers conduct in two broadly defined categories — ______ and ______
investment
recommendations, investment action
Standard III(C)
Suitability
Standard III(D)
Performance Presentation
For members and candidates who are showing the performance history of the assets
they manage, compliance with __________ is the best method to meet their
obligations under Standard III(D)
the GIPS standards
Standard III(E)
Preservation of Confidentiality
Standard IV
Duties to employers
Standard IV(A)
Loyalty to employers
Standard IV(B)
Additional Compensation Arrangements
Members and Candidates must not accept gifts, benefits, compensation, or consideration
that competes with or might reasonably be expected to create a conflict of interest with
their employer’s interest unless _______
they obtain written consent from ALL parties involved.
Standard IV(C)
Responsibilities of Supervisors
Standard V
Investment Analysis, Recommendations, And Actions
Standard V(A)
Diligence and Reasonable Basis
Standard V(B)
Communication with Clients and Prospective
Clients
Standard V(C)
Record Retention
Standard VI
Conflicts of Interest
Standard VI(A)
Disclosure of Conflicts
The most prevalent conflict requiring disclosure under Standard VI(A) is
a member’s
or candidate’s ownership of stock in companies that he or she recommends to clients
or that clients hold.
Standard VI(B)
Priority of Transactions
Standard VI(C)
Referral Fees
Standard VII
Responsabilities as a CFA Institute Member or CFA Candidate
Standard VII(A)
Conduct as Participants in CFA Institute Programs
Standard VII(B)
Reference to CFA Institute, the CFA Designation,
and the CFA Program
Which one of the following actions will help to ensure the fair treatment of
brokerage firm clients when a new investment
recommendation is made?
A Informing all people in the firm in advance that a recommendation is to be
disseminated.
B Distributing recommendations to institutional clients prior to individual
accounts.
C Minimizing the time between the decision and the dissemination of a
recommendation.
C
11 The mosaic theory holds that an analyst:
A Violates the Code and Standards if the analyst fails to have knowledge of
and comply with applicable laws.
B Can use material public information and nonmaterial nonpublic information
in the analyst’s analysis.
C Should use all available and relevant information in support of an investment recommendation
B
Paper was recently terminated as one of a team of five managers of an equity
fund. The fund had two value-focused managers and terminated one of them
to reduce costs. In a letter sent to prospective employers, Paper presents, with
written permission of the firm, the performance history of the fund to demonstrate his past success.
A Paper did not violate the Code and Standards.
B Paper violated the Code and Standards by claiming the performance of the
entire fund as his own.
C Paper violated the Code and Standards by including the historical results of
his prior employer.
B
