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Ethical and Professional Standards > LM:3 Guidance For Standards I-VII > Flashcards

LM:3 Guidance For Standards I-VII Flashcards

1
Q

What are the 2 rules for knowledge of the law?

A
  1. Follow more strict law
  2. Dissociate from any violation of such laws, rules, or regulations.
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2
Q

What are the 2 rules for independence & objectivity?

A
  1. Use reasonable care & good judgement to achieve and maintain independence & objective
  2. Must not offer or accept gifts, compensation, etc; anything that could compromise own or another’s independence & objectivity
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3
Q

What does omissions mean?

A

Being left out

Eg. When some transactions are completely omitted from the books of accounts or entered but not posted.

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4
Q

What are 6 areas that may involve misrepresentation? IPSOPW

A
  1. Investment practice (qualifications, performance record.etc)
  2. Performance reporting
  3. Social media
  4. Omissions
  5. Plagiarism
  6. Work completed for employer (when hired by employer can put your name out employer name)
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5
Q

Are employers allowed to issue reports without providing credit to the previous analyst? Additionally, are analyst allowed to publish reports if they no longer work for the firm?

A
  • yes employers are allowed to issue reports without providing credit to the previous analyst
  • no analysts cannot publish reports if they no longer work for the firm
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6
Q

What are 2 things you should do to avoid plagiarism on a research report?

A
  • maintain copies: keep copies of sources and everything used in report
  • attribute quotations: give credit to the source
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7
Q

What is misconduct?

A

Unacceptable or improper behavior

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8
Q

What is material information?

A

Disclosure of information would have impact on price of a security

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9
Q

What are the 2 ways to manipulate markets?

A
  1. Information based manipulation
  2. Transaction based manipulation
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10
Q

What is information based manipulation?

A

Spread false rumors about company to change the price of security (pump & dump)

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11
Q

What is transaction based manipulation?

A

Transactions that affect price or volume

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12
Q

What are the 4 rules to loyalty, prudence, & care for duties to client?

A

-must act with reasonable care and exercise good judgement
-place client interest before employer or own interest
-soft dollar commissions are asset of client and may only be used for benefit of client (eg. research), does not include general education
-must provide performance statements at least quarterly

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13
Q

What is soft commissions?

A

When investment manager uses client brokerage to purchase research services

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14
Q

What is directed brokerage?

A

When client directs a manager to use the clients brokerage to execute transactions for the client

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15
Q

How should you vote for proxy statements for clients?

A

Vote in a way that benefits the client the most

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16
Q

What are the 3 keys to the trade allocation procedure?

A
  1. Fairness
  2. Timeliness
  3. Accuracy
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17
Q

How often must IPS be reviewed?

A

At least annually

18
Q

What is responsibility of supervisor code of standards?

A

Members and candidates who supervise people, must make sure they comply with applicable laws, rules, regulations, and codes & standards.

19
Q

What is secondary research?

A

Research conducted by someone else in the firm

20
Q

What is third-party research?

A

Research conducted by entities outside of the firm

21
Q

What is front running trades?

A

Entering a trade in advance to an non public block transaction about to incur from client.

(trading stocks or any asset based on insider knowledge of a future transaction that will affect its price)

22
Q

Knowledge of the law requires members and candidates to dissociate from any violation of laws, rules, regulations; however, do they have to report these suspicions to legal or regulatory authorities?

A

No they do not unless such action is required by law.

23
Q

When keeping independence and objectivity you can accept flat fees but can you accept options or equity positions?

A

No only flat fees, any fee based on how well the stock performs or firm performs is a violation

24
Q

Record retention requires you to keep records for at least 7 years, however, if statements are falsely sent out then later updated statements with accurate information is sent out, can you delete or destroy the false files?

A

No if there’s a mistake you must just label the statements with mistakes and update the new ones with accurate information

25
Q

Is testing out equipment from a company enough to justify diligence and reasonable basis?

A

No, you just do your research diligence

26
Q

What are the three requirements for Performance Presentation?

A
  1. Must be fair
  2. Must be accurate
  3. Must be complete
27
Q

What are the 2 musts for responsibilities of supervisors?

A
  1. System for supervision (must be established, communicated, and documented; and detect violations)
  2. Must not accept role unless adequate compliance system (unless firm compliance is substandard and you can use your influence to improve system)
28
Q

What are 3 recommendation for recommended procedures for priority of transactions?

A
  • Participation in equity IPO’s should be limited because it could appear to take away opportunities from clients.
  • Members & candidates must not obtain any shares in an oversubscribed IPO.
  • Get approval from firm in advance of IPO.
29
Q

For record retention if there are no regulatory guidance, how many years does CFA institute recommend you record records?

A

7 years.

30
Q

For reference to the CFA institute, designation, what are 2 rules for individuals to be considered to be candidates?

A
  1. Are awaiting results for current exam
  2. Are registered for an exam
31
Q

What is the 1 rule to diligence and basis if doing a group project?

A

Members and candidates who lack confidence in process used to arrive at a group consensus should disassociate from group’s work and remove name from any work based process.

32
Q

Members and candidates who receive compensation for referring clients, how often should they update employer about nature and amount of compensation received?

A

At least quarterly

33
Q

What is the 1 rule for material non-public information?

A

Members and candidates who possess material nonpublic information that could impact value of an investment must not act or cause others to act on information.

34
Q

To maintain CFA institute membership, a member must fulfill what 2 requirements?

A
  1. Annually complete the Professional Conduct Statement
  2. Pay applicable membership dues on an annual basis
35
Q

What is pro rata basis for oversubscribed IPO’s?

A

each investor receives a proportionate amount of shares relative to their initial request.

36
Q

What are the 2 rule to fair dealing?

A

-all clients participating in a block trade should be assigned the same price and charged same commission (pro rata basis allowed), however, deviations are allowed to account for minimum lot sizes.

-treat all clients in a fair and impartial manner

37
Q

What is the 1 rule to loyalty for duties to employer?

A

-you can make arrangements to start a new business while still employed at old firm, as long as it doesn’t take an unreasonable amount of time away from job duties.

38
Q

Who are a fund managers primary duty of loyalty owed too?

A

the funds mandate

39
Q

What is the 1 rule for referral fees?

A

-members and candidates must disclose benefits for referring products or services and provide an estimate for its monetary value

40
Q

What is capsule form and what must you notify the client if information is in capsule from?

A

capsule form: information is generic (eg.recommended stock list)

members and candidates should notify clients that additional information and analyses are available from the producer of the report.

41
Q

Who are a fund managers mandate owed to for pension funds?

A

the beneficiary of the pension fund

Ethical and Professional Standards (4 decks)

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