Vol. 6 LM3 Guidance for Standards I-VII Flashcards
What should members and candidates do when they face uncertainties about regulations
p 317
They should consult their firm’s policies and access compliance guidance
What should members and candidates do when the laws of a country and the Code and Standards conflict?
p 317
Members and candidates must follow the stricter of the law or the Code and Standards
List standard
applies when members and candidates know or should know that their conduct may contribute to a violation of applicable laws, rules, or regulations or the Code and Standards
p 317
Standard I(A)
in extreme cases, dissociation of illegal or unethical activities may require
p 317
a member or candidate to leave his or her employment
Applicable law
Member resides in NS country, does business in LS country
p 318
LS law applies
Member resides in NS country, does business in MS country
p 318
MS law applies
Member resides in LS country, does business in NS country
p 319
LS law applies
Member resides in LS country, does business in MS country
p 319
MS law applies
Member resides in LS country, does business in NS country
p 319
LS law applies, but it states that law of locality where business is conducted governs
Member resides in MS country, does business in LS country
p 319
MS law applies
Member resides in MS country, does business in LS country with a client who is a citizen of LS country
p 319
MS law applies, but it states that the law of the client’s home country governs
List
members and candidates can acquire and maintain understanding of applicable laws, rules, and regulations by
p 320
- staying informed
- reviewing procedures
- maintain current files
List
application of Standard I(A)
p 321
- research independence
- intrafirm pressure
- sales pressure
- issuer relationship pressure
- prior coverage
- compensation arrangements
- travel expenses
- recommendation objectivity
Situations
Standard I(A) Application of the Standard
p 321
- notification of known violations
- dissociating from a violation
- following the highest requirements
- laws and regulations based on religious tenets
- reporting potential unethical actions
- failure to maintain knowledge of the law
List
recommended procedures - Standard I(A)
- appointed officer
- review procedures
- independence policy
- restrict special cost arrangement
- protect the integrity of opinions
- Restrict investments
- create a restricted list
- limit gifts
List
guidance - Standard I(A)
- public companies
- performance measurement and attribution
- buy-side clients
- influence during the manager selection
- fund manager and custodial relationships
- travel funding
- credit rating agency opinions
STANDARD I(B): RECOMMENDED PROCEDURES
Protect the integrity of opinions
p 330
- Members, candidates, and their firms should establish policies stating every research report concerning the securities of a corporate client should reflect the unbiased opinion of the analyst
- Firms should also design compensation systems that protect the integrity of the investment decision process
STANDARD I(B): RECOMMENDED PROCEDURES
Create a restricted list
p 330
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(B): RECOMMENDED PROCEDURES
Restrict special cost arrangements
p 330
- When attending meetings at an issuer’s headquarters, members and candidates should pay for commercial transportation and hotel charges.
- No corporate issuer should reimburse members or candidates for air transportation.
- Members and candidates should take particular care that when frequent meetings are held between an individual issuer and an individual member or candidate, the issuer should not always host the member or candidate
STANDARD I(B): RECOMMENDED PROCEDURES
Limit gifts
p 330
- Members and candidates must limit the acceptance of gratuities and/or gifts to token items
- Standard I(B) does not preclude customary, ordinary business-related entertainment as long as its purpose is not always host the member or candidate
STANDARD I(B): RECOMMENDED PROCEDURES
Restrict investments
p 331
- Members and candidates should encourage their investment firms to develop formal policies related to employee purchases of equity or equity-related IPOs.
- FIrms should require prior approval for employee participation in IPOs
STANDARD I(B): RECOMMENDED PROCEDURES
Review procedures
p 331
- members and candidates should encourage their firms to implement effective supervisory and review procedures to ensure that analysts and portfolio managers comply with policies relating to their personal investment activities
STANDARD I(B): RECOMMENDED PROCEDURES
Appointed officer
p 331
Firms should appoint a sesnior officer with oversight responsibilities for compliance with the firm’s code of ethics and all regulations concerning its business
STANDARD I(B): GUIDANCE
Buy-Side Clients
p 326
- institutional clients are traditionally the primary users of sell-side research, either directly or with soft dollar brokerage
- portfolio managers may have significant positions in the security of a company under review
- Some portfolio managers implicitly or explicityly support sell-side ratings inflation
- It is improper for portfolio managers to threaten or engage in retaliatory practices, such as reporting sell-side analysts to the covered company in order to instigate negative corporate reactions
STANDARD I(B): GUIDANCE
Fund Manager and Custodial Relationships
p 326
- Members and candidates who are responsible for hiring and retaining outside managers and third-party custodians should not accepts gifts, entertainment, or travel funding that may be perceived as impairing their decisions
- candidates must review the merits of each offer individually in determining whether they may attend yet maintain their independence
STANDARD I(B): GUIDANCE
Public Companies
p 327
- Due diligence in financial research an analysis involves gathering information from a wide variety of sources, including public disclosure documents
- company management and investor-relations personnel, suppliers, customers, competitors
- analysts may fear that companies will limit access to company managers and conference calls if they give negative reviews
