|
 
- UID
- 223239
- 帖子
- 374
- 主题
- 173
- 注册时间
- 2011-7-11
- 最后登录
- 2016-4-21
|
Early-afternoon snack (ethics)
I’ll post answers today after 4:30 EST.
TCB Capital Management
Portfolio manager Iris Macadangdang, CFA, is a partner at TCB Capital Management, a long-only domestic equity manager. In addition to her portfolio management duties, Macadangdang is responsible for determining compliance with CFA Institute Soft Dollar Standards. In her morning mail, Macadangdang receives a notice that the local regulatory agency has issued a new rule about the use of client brokerage. According to the new rule, research to be paid with client brokerage “must include value-added analysis.”
As part of her compliance duties, on a periodic basis Macadangdang evaluates the various brokers and research services used by TCB. Her assistant develops a worksheet of the brokerage firms’ quoted commission rates for domestic stock trades. In addition, Macadangdang studies trading reports on each firm showing the average spread for all trades for each of the past 12 months and ranks the firms on an aggregate basis. Finally, Macadangdang evaluates research and other services available through soft dollars. Several firms offer proprietary and third-party research arrangements which TCB believes are valuable to the firm and its clients. Macadangdang polls staff members on the value of the services provided. After completing the research, Macadangdang develops a list of “preferred brokers” based on their commission structure, execution history, and research services. She instructs the firm’s trading desk to direct trades to the preferred brokers whenever possible.
Kielbasa Financial is one of Macadangdang’s preferred brokers. Kielbasa charges commissions of $0.05 per share and offers a variety of products and services including proprietary research. For firms that generate a minimum dollar amount of brokerage commissions, Kielbasa offers a subscription service that provides raw data feeds of historic price and economic information. Macadangdang is confident that the amount of brokerage directed to its preferred brokers will exceed the required minimum. TCB will be able to use the raw data feeds for research activities as well as valuing client portfolios.
Ya’Hynis Investments, which recently launched a new hedge fund, is also a preferred broker. Ya’Hynis charges commissions of $0.06 per share and provides third-party research including reports from Calamity Financial. Calamity produces excellent research in the area of derivatives and Macadangdang believes its reports will be useful to TCB in developing proprietary structured products.
Macadangdang is planning a meeting with a prospective client. The prospective client, a pension fund, requires that its advisers comply with CFA Institute Soft Dollar Standards. In preparation, Macadangdang sends the pension fund a packet containing the following information:
Soft Dollar Arrangements
TCB engages in soft dollar arrangements with brokers in which commission dollars generated by client trades pay for investment research and brokerage products and services. The commission paid to such brokers may be higher than the commission another broker would charge for the same transaction. The research purchased with brokerage benefits all clients and not only those whose trades generated the brokerage.
TCB uses commissions on securities purchased or sold in client accounts to pay for the following services:
Research Provider; Broker; Description of Service
Nemesis Financial; NFC; Stock market quotations and monitoring
Statshot; MNL; Statistical database
Barge-upender; BAR; Asset allocation modeling
Chastity Analyst; CAA; Asset allocation backtesting
At the meeting, the pension fund trustees inform TCB that, by law, 20% of the fund’s brokerage must be directed to three local minority-owned brokers. Macadangdang tells the pension fund board that, “We have a fiduciary duty to seek best execution for all client trades. The requirement to commit 20% of brokerage to specific firms may affect our ability to seek and obtain best execution. It may also adversely affect our ability to obtain adequate research for the fund.”
The trustees respond that they “will continue to increase diversity by using minority-owned brokers and to support the regional economy by using local brokers.” They also inform Macadangdang that they have entered into commission recapture programs with all three minority-owned firms. The commission recapture programs provide the pension fund with cash rebates that the pension fund uses to pay certain administrative expenses.
Macadangdang replies that to comply with the trustees’ request, she will need written instructions identifying the eligible brokers, the approximate target percentage to be directed to each, and procedures for monitoring the arrangements. The pension fund soon signs a contract with TCB naming Macadangdang as portfolio manager.
The following month, Macadangdang directs the trading desk to purchase 10,000 shares of a mid-capitalization stock for the pension fund. The trading desk has three choices. Kielbasa would execute the trade on a principal basis rather than charge its normal commission. Ya’Hynis would charge its normal commission of $0.06 to execute the trade. Titball, an agency broker that is not on Macadangdang’s list of preferred brokers, specializes in the stock and would charge a commission of $0.05 per share. The head trader believes that Titball will execute the shares with minimal market impact.
1. Is directing brokerage to Macadangdang’s preferred brokers consistent with both the required and recommended CFA Institute Soft Dollar Standards?
A. Yes.
B. Only if the preferred broker offers best execution.
C. Only if the preferred broker offers research services of appropriate value.
2. According to the CFA Institute Soft Dollar Standards, is it permissible for Macadangdang to pay for some portion of Kielbasa’s subscription service with client brokerage?
A. Yes.
B. No, because the service does not include value-added analysis.
C. No, because the service requires a minimum dollar amount of transactions.
3. Is the purchase of Calamity reports with client brokerage consistent with both the required and recommended CFA Institute Soft Dollar Standards?
A. Yes.
B. No, because the reports are from a third-party.
C. No, because the reports do not support the investment decision-making process.
4. Is the written information that Macadangdang provides to the potential client consistent with both the required and recommended CFA Institute Soft Dollar Standards?
A. Yes.
B. No, because it does not address whether trades generating brokerage involve transactions conducted on a principal basis.
C. No, because it does not indicate that all soft dollar arrangements comply with the CFA Institute Soft Dollar Standards.
5. Are Macadangdang’s oral statements about the pension fund’s proposed directed brokerage arrangement consistent with both the required and recommended CFA Institute Soft Dollar Standards?
A. Yes.
B. No, because Macadangdang should disclose the information in writing.
C. No, because Macadangdang was misrepresenting the facts—the arrangement will not affect Macadangdang’s ability to obtain adequate research.
6. Are the written instructions that Macadangdang requests from the pension plan consistent with recommended practices of the CFA Institute Soft Dollar Standards?
A. Yes.
B. No, because Macadangdang should also request written instructions that relieve TCB of responsibility to seek best execution.
C. No, because Macadangdang should also request written instructions that restate TCB’s responsibility to seek best execution. |
|
发表于 2013-3-31 12:45
|