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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Dick Charles is a security analyst with a large brokerage company. Sean Donaldson is a money manager. They both listen in on a conference call for security analysts with the president of Stoppard, Inc., who states that in two days the company will be holding a press conference announcing a new product. Both Charles and Donaldson feel the news will increase the value of Stoppard.

A) Charles can disseminate the information to clients, and Donaldson can purchase the stock for his clients immediately.

B) Charles must wait until after the press conference to disseminate the information to clients, but Donaldson can purchase the stock for his clients immediately.

C) Charles must wait until after the press conference to disseminate the information to clients, and Donaldson must wait until after the press conference to purchase the stock for his clients.

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By waiting until after the press conference the information would then be considered public information and can then be disseminated to clients and traded on without there being any issues of insider trading.

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Brendan Duval works as a research analyst for Toby Securities. Duval recommends changing a recommendation from “sell” to “buy” on Dalton Company. His firm, which manages several mutual funds, may be interested in buying Dalton’s stock. He also manages the retirement account that his parents established with Toby. Duval wants to buy shares of Dalton’s stock because it is an appropriate investment for his parent’s retirement account and obtains approval from his employer to do so. Duval is also thinking about personally investing in Dalton stock. According to CFA Institute Standards of Professional Conduct, which of the following best describes the priority of transactions? Duval should give:

A) priority to Toby's clients and his employer concurrently, followed by his parent's retirement account, and finally his personal account.

B) Toby's clients and his parent's account equal priority, followed by his employer, and then his personal account.

C) priority of transactions to Toby's clients, followed by his employer, then his parent's retirement account, and finally his personal account.

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According Standard VI(B) Priority of Transactions, Duval should give transactions for clients and employers priority over his personal transactions. Because his parent’s retirement account represents a client account at Toby, Duval should treat this account just like any other firm account. His parent’s retirement account should neither be given special treatment nor disadvantaged because of an existing family relationship with Duval. If Duval treats his parent’s retirement account differently from other accounts at Toby, he would breach his fiduciary duty to his parents.

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Caroline Turner, an analyst for Lansing Asset Management, just completed an investment report in which she recommends changing a “buy” to a “sell” for Gallup Company. Her supervisor at Lansing approves of the change in recommendation. Turner wonders about whether she needs to disseminate this investment recommendation to Lansing’s clients and if so, how to distribute this information. According to CFA Institute Standards of Professional Conduct, Turner is:

A) required to design an equitable system to disseminate the change in a prior investment recommendation.

B) not required to disseminate the change of recommendation from a buy to a sell because the change is not material.

C) required to disseminate the change in a prior investment recommendation to all clients and customers on a uniform basis.

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Standard III(B) – Fair Dealing requires dealing fairly and objectively with all clients and prospects when disseminating material changes in prior investment recommendations. Note that the standard requires the dissemination be fair, but not necessarily equal due to the impossibility of contacting all clients simultaneously. A change of recommendation from “buy” to “sell” is generally material.

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

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

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

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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 both Dixon and S&.

C) Brown must credit Dixon, no need to credit 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.

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Kim Lee is a research analyst at Superior Investments and is researching a biotech firm specializing in the analysis of "mad cow" disease. While touring company facilities and meeting with management, she learns that they believe they may have found a way to reverse the disease. Moreover, one manager conjectured, "Suppose that we reversed the disease in someone who didn't even have it? We might then be able to boost that individual's IQ into the stratosphere!" After returning to her office, Lee issues a research report describing the compound as an "IQ booster with huge potential." This statement:

A) lacks a reasonable and adequate basis in fact.

B) is reasonable given the information she was provided by the company.

C) is allowable but only if quoted verbatim from her conversations with management.

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Standard V(A) requires that a member have a "reasonable and adequate basis" before making an investment recommendation. Extrapolating on the basis of the conjecture of one member of the management team, without independent corroboration, is clearly in violation of this Standard. She is also in violation of Standard V(B) concerning the use of reasonable judgment regarding what is included or excluded in a communication with a client or prospective client.

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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) Voting proxies may not be necessary in all instances.

B) The value of proxy voting must be maximized.

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

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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.