Lecture 4 & 5

Question 1

Code

Answer 1

Set of rules that professionals are expected to follow but it doesn’t explain how it should be done

Question 2

Standard

Answer 2

Set of technical definitions, specifications, and guidelines that outline the behavior and it gives you instructions

Question 3

Laws

Answer 3

Set of rules of behavior that are enforced through legislation

Question 4

Accredited Investor

Answer 4

Individual who alone or with spouse owns financial assets with realizable value before taxes net of liabilities exceeds 1mil

or

Individual whose net income before taxes exceeded 200,000 in each of the two most recent calendar years or whose net income before taxes with spouses exceeds 300k

or

alone or with spouse has minimum 5m in assets

or

a person has net assets of at least 5m as shown on financial statements

Question 5

Nominal Gift

Answer 5

Anything that could affect your independence or objectivity is not considered to be nominal

Question 6

Standard 2

Answer 6

Integrity of Capital Markets

Question 7

Standard 2(A)

Answer 7

Material Non Public Information

Question 8

What is Material Non Public Information

Answer 8

Basically, an individual that possesses non public information (information that can affect stock price) must not act or cause others to act on that

Question 9

Mosaic Theory

Answer 9

Involves collecting public, non-public, and non-material information about a company to determine the value the securities and to enable the analyst to make recommendations to clients based on that information

Question 10

Standard 2(B)

Answer 10

Market Manipulation

Question 11

What is Market Manipulation?

Answer 11

Practice of distorting prices or inflating trading volume

Question 12

Pump and Dump

Answer 12

Scheme where stock is artificially increased by using false statements, and then the scheme holders will sell their shares

Question 13

Front Running

Answer 13

Broker trading a security for their own portfolio or “special” client based on info given from analyst department before any client obtains it

Question 14

Cherry Picking

Answer 14

Strategy when investment manager chooses to show only those funds/years that have above average performance when promoting their performance record

Question 15

Tipping

Answer 15

Providing material non public information about a public company to someone that isn’t authorized to have this info

Question 16

Standard 3

Answer 16

Duties to Client

Question 17

Standard 3(A)

Answer 17

Loyalty, Prudence, and Care

Question 18

Loyalty, Prudence, and Care meaning?

Answer 18

Must act for the benefit of the client and place the client’s interests above your employer

Question 19

Custodial Account

Answer 19

Control the clients assets

Question 20

Trust Accounts

Answer 20

E.g., savings

Question 21

Escrow Account

Answer 21

Used for certain purpose

Question 22

Discretionary Accounts

Answer 22

Ability to act on behalf of client without permission

Question 23

Non Discretionary Account

Answer 23

Need client’s permission to act

Question 24

Standard 3(B)

Answer 24

Fair Dealings

Question 25

Fair Dealings

Answer 25

All clients must be treated fairly without any favoritism being present.

Question 26

Standard 3(C)

Answer 26

Suitability

Question 27

Suitability meaning

Answer 27

Must understand clients goals and objectives so see what’s suitable for them

Question 28

Standard 3 (D)

Answer 28

Performance Presentations

Question 29

Performance Presentations meaning

Answer 29

Must include full and complete disclosure

Question 30

Individuals are allowed to ignore the negative values of a security when presenting it to a client

True or False?

Answer 30

False, must explain both features

Question 31

Performance data must not be more than ____ days

Answer 31

45

Question 32

Mutual fund returns should be since ________ if not available then a minimum of _ years

Answer 32

inception, 5

Question 33

Standard 3(E)

Answer 33

Preservation of Confidentiality

Question 34

Preservation of Confidentiality meaning

Answer 34

Members and candidates must keep information about current, former, and prospective clients confidential unless illegal activities are involved, disclosure required by the law, client permits disclosure