Lecture 4 & 5 Flashcards
Code
Set of rules that professionals are expected to follow but it doesn’t explain how it should be done
Standard
Set of technical definitions, specifications, and guidelines that outline the behavior and it gives you instructions
Laws
Set of rules of behavior that are enforced through legislation
Accredited Investor
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
Nominal Gift
Anything that could affect your independence or objectivity is not considered to be nominal
Standard 2
Integrity of Capital Markets
Standard 2(A)
Material Non Public Information
What is Material Non Public Information
Basically, an individual that possesses non public information (information that can affect stock price) must not act or cause others to act on that
Mosaic Theory
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
Standard 2(B)
Market Manipulation
What is Market Manipulation?
Practice of distorting prices or inflating trading volume
Pump and Dump
Scheme where stock is artificially increased by using false statements, and then the scheme holders will sell their shares
Front Running
Broker trading a security for their own portfolio or “special” client based on info given from analyst department before any client obtains it
Cherry Picking
Strategy when investment manager chooses to show only those funds/years that have above average performance when promoting their performance record
Tipping
Providing material non public information about a public company to someone that isn’t authorized to have this info
Standard 3
Duties to Client
Standard 3(A)
Loyalty, Prudence, and Care
Loyalty, Prudence, and Care meaning?
Must act for the benefit of the client and place the client’s interests above your employer
Custodial Account
Control the clients assets
Trust Accounts
E.g., savings
Escrow Account
Used for certain purpose
Discretionary Accounts
Ability to act on behalf of client without permission
Non Discretionary Account
Need client’s permission to act
Standard 3(B)
Fair Dealings
Fair Dealings
All clients must be treated fairly without any favoritism being present.
Standard 3(C)
Suitability
Suitability meaning
Must understand clients goals and objectives so see what’s suitable for them
Standard 3 (D)
Performance Presentations
Performance Presentations meaning
Must include full and complete disclosure
Individuals are allowed to ignore the negative values of a security when presenting it to a client
True or False?
False, must explain both features
Performance data must not be more than ____ days old
45
Mutual fund returns should be since ________ if not available then a minimum of _ years
inception, 5
Standard 3(E)
Preservation of Confidentiality
Preservation of Confidentiality meaning
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
