Reading 2: Guidance for Standards I–VII-LOS a, b, c习题精选 2011, integrity, involving, knowledge, between

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Session 1: Ethical and Professional Standards
Reading 2: Guidance for Standards I–VII

LOS a, b, c:

1. Demonstrate a thorough knowledge of the Code of Ethics and Standards of Professional Conduct by applying the Code and Standards to situations involving issues of professional integrity.
   
   
2. Distinguish between conduct that conforms to the Code and Standards and conduct that violates the Code and Standards.
   
   
3. Recommend practices and procedures designed to prevent violations of the Code of Ethics and Standards of Professional Conduct.

 

 

Member compliance on issues relating to corporate governance or to soft dollars is primarily addressed by the Standard concerning:

A) Disclosure of Referral Fees.

B) Loyalty, Prudence, and Care.

C) Disclosure of Conflicts to Clients and Prospects.

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Fiduciary duty on issues relating to corporate governance or to soft dollars is primarily addressed by Standard III(A), Loyalty, Prudence, and Care.

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Rickard Advisors recently had a trading error in a customer account that was subsequently covered by Rickard. The firm felt embarrassed by the disclosure of this error, and, in order to induce the client to continue its relationship, Rickard offers the client preferential access to a new issue that is expected to be “hot.” Which Standard is violated, if any?

A) The Standard concerning Fair Dealing.

B) The Standard concerning Fiduciary Duty.

C) The Standard concerning Independence and Objectivity.

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Rickard is in violation of the Standard concerning Fair Dealing by offering the client preferential access to a “hot” new issue. There is no obvious violation of Fiduciary Duty, since there is no evidence that Rickard is placing its own financial interest ahead of the client.

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Scott Andrews, CFA, is a stockbroker selling an oversubscribed stock issue. Which of the following best describes Andrews' actions regarding this sale? Andrews:

A) cannot offer an oversubscribed issue of stock to any clients.

B) can offer this security on a prorated basis to all clients for which the security is appropriate.

C) can only offer this security to clients for which it is appropriate on a first come first serve basis.

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Standard III(B), Fair Dealing, applies. When new issues or secondary offerings are available or are being offered by the firm or if the firm is part of a selling syndicate, all clients for whom the security is appropriate are to be offered a chance to take part in the issue. If the issue is oversubscribed, then the issue is to be prorated to all subscribers.

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The use of client brokerage by an investment manager to obtain certain products and services to aid the manager in the investment decision-making process is called:

A) quid pro quo practices.

B) trading practices.

C) soft dollar practices.

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Directing client brokerage for research and/or services is called soft dollar practices.

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Sharon Pope has been asked by the Chief Investment Officer to develop a firm-wide policy for proxy voting. Which of the following would NOT be acceptable to include in the policy statement?

A) Portfolio managers of active funds must vote in all proxies; portfolio managers of index funds should vote only when they have a definitive opinion.

B) Voting proxies may not be necessary in all instances.

C) The value of proxy voting must be maximized.

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Proxies for stocks in passively managed funds must also be voted. A cost-benefit analysis may show that voting all proxies may not benefit all clients.

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In the course of reviewing the Corn Co., an analyst has received comments from management that, while not meaningful by themselves, when pieced together with data he has accumulated from outside sources, lead him to recommend placing Corn Co. on his firm's sell list. What should the analyst do?

A) The comments are non material and the report can be issued as long as he maintains a file of the facts as supplied by management.

B) Show his report to his own manager and counsel for their review since this information has become material once it was combined with his analysis.

C) Not issue the report until the comments are publicly announced.

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This is an example of the mosaic theory where separate pieces of nonmaterial information are pieced together to make an investment recommendation.

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Sallie Reid, CFA, is asked by her boss, also a CFA charterholder, to use a research report of a competing firm, change a few details, sign it and send it to a large client. He says their firm’s researchers will draw the same conclusions but haven’t gotten to them yet. If she complies, she is doing all of the following EXCEPT:

A) complying with CFA Institute standards because she cannot disobey her boss.

B) obeying her boss, a CFA charterholder, but violating several of the CFA Institute Code and Standards.

C) violating CFA Institute standards dealing with plagiarism.

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If Sallie complies, she is violating Standard I(C) Misrepresentation, because copying the report is plagiarism. Sallie should attempt to disassociate from any activity that she knows is in violation of the standards.

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Sheila Stevens has accepted a one-year gift membership (valued at approximately $225) to the Women’s World Health Club from a firm to which she directs trades. She has done so without notifying her employer. Which of the following statements is least accurate?

A) This is a violation of the Code and Standards, because the gift is not a token amount.

B) This is a violation of the Code and Standards but is less serious than an identical case in which the gift was given by a client of Stevens.

C) This is a violation of the Code and Standards, because it has not been disclosed to her employer.

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This action is clearly a violation of Standard I(B), Independence and Objectivity. Accepting a gift from a non-client is a more serious violation than accepting a gift from a client (for which a compensation arrangement would already exist), since the intent is almost certainly to gain influence over future actions of the member (e.g., increased allocation of trades).

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While visiting the CSI Company, Mark Ramsey, CFA, overheard management make comments that were not public information, but were not really meaningful by themselves. However, when this information is combined with his own analysis and other outside sources, Ramsey decides to change his recommendation on CSI from buy to sell. According to CFA Institute Standards of Professional Conduct, Ramsey should:

A) issue his sell report because the facts are nonmaterial, but maintain a file of the facts and documents leading to this conclusion.

B) report these events to his immediate supervisor and legal counsel, since they have become material in combination with his analysis.

C) not issue his report until these comments are made public.

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The use of security analysis combined with nonmaterial nonpublic information to arrive at significant conclusions is legal and is called the mosaic theory.

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Travis Brown is a partner in a money management firm. He recently attended a seminar and learned about a quantitative model presented by Dixon. Upon returning to his office, Brown began testing the model and making a few minor alterations. He showed the model to his partners who were impressed and decided to promote the model as proof of the firm's value added. In the firm's next newsletter, Brown included a discussion of the model, the results, and financial data on several stocks selected by the model. These factual data were taken from Standard and Poor's publication. According to the CFA Institute Standards of Professional Conduct, which of the following actions is Brown required to take?

A) Brown must credit S&, no need to credit Dixon.

B) Brown must credit Dixon, no need to credit S&.

C) Brown must credit both Dixon and S&.

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The Standards require members to acknowledge the author of a model, but members are not required to acknowledge information from a recognized statistical and reporting service.