mouse123

Frank Rolle is a portfolio manager who works for a firm that offers comprehensive portfolio management and employs buy-side traders. Rolle and his buy-side trader are considering shifting their business to a sell-side trader, Jack Smith. Smith has promised that Rolle and his traders will gain access to investment research put out by his firm. Rolle knows that Smith’s firm tends to charge higher commissions. Rolle does not believe the quality of Smith’s research to be any better than he is currently receiving from other sell-side traders. What should Rolle do?

A) Not trade with Smith because his research is of no better quality.

B) Not trade with Smith because the interests of his clients come first.

C) Trade with Smith because he may have better research.

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Buy-side traders and portfolio managers have a fiduciary duty to maximize the value of their client’s portfolio. Smith’s higher commissions should prevent Rolle from trading with him. The buy-side trader’s relationships with sell-side traders must never come before the interests of their clients. There is no evidence that Smith has done anything improper, so reporting him to the exchange regulators is unnecessary.

mouse123

Which of the following is least accurate regarding best execution, the CFA Institute’s Trade Management Guidelines, and ethics in trading?

A) Best execution should be measured over short, relevant time periods.

B) The buy-side trader’s relationship with clients must come before their relationship with sell-side traders.

C) Record keeping is a key component of the CFA Institute’s Trade Management Guidelines.

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Although best execution can be measured ex post over time, it should not be used to evaluate trading effectiveness over a short time span. Buy-side traders and portfolio managers have a fiduciary duty to maximize the value of their client’s portfolio.