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

LOS a, b, c:

a. Demonstrate a thorough knowledge of the Code of Ethics and Standards of Professional Conduct by applying the Code and Standards to specific situations presenting multiple issues of questionable professional conduct.

b. Distinguish between conduct that conforms to the Code and Standards and conduct that violates the Code and Standards.

c. Recommend practices and procedures designed to prevent violations of the Code of Ethics and Standards of Professional Conduct

1、Janine Turner, a CFA candidate, is an analyst for Lansing Asset Management. She 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. She 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.

D)   required to design a system to disseminate the change in a prior investment recommendation that gives priority to Lansing's largest clients.

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

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

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

D)   all parties (Toby's clients, his employer, his parent's retirement account, and his personal account) the same priority of transactions.

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

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

C)   lacks a reasonable and adequate basis in fact.

D)   violates the Standard concerning plagiarism.

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)   contact CSI's managers and have them publicly announce their statements.

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

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.

D)   This is a violation of the Code and Standards, because the intent appears to be to gain influence over Stevens.

[此贴子已经被作者于2008-4-2 11:02:25编辑过]

答案和详解如下：

1、Janine Turner, a CFA candidate, is an analyst for Lansing Asset Management. She 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. She 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.

D)   required to design a system to disseminate the change in a prior investment recommendation that gives priority to Lansing's largest clients.

The correct answer was A)  

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.

2、Brendan Duval, CFA, 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 of transactions to Toby's clients, followed by his employer, then his parent's retirement account, and finally his personal account.

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

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

D)   all parties (Toby's clients, his employer, his parent's retirement account, and his personal account) the same priority of transactions.

The correct answer was C)  

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.

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

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

C)   lacks a reasonable and adequate basis in fact.

D)   violates the Standard concerning plagiarism.

The correct answer was C)

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.

4、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)   contact CSI's managers and have them publicly announce their statements.

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

The correct answer was D)

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

5、Sheila Stevens, CFA, 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 are FALSE?

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.

D)   This is a violation of the Code and Standards, because the intent appears to be to gain influence over Stevens.

The correct answer was B)     

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).