Q6. Mohawk Asset Management buys on-the-run Treasuries at auction for its standard fee accounts. When these move off-the-run, they are placed in performance-based accounts via in-house cross-trades at prevailing market prices, and replaced in the standard fee accounts with new on-the-run issues. Which standard is violated, if any?

A)    The Standard concerning Priority of Transactions.

B)    No Standard is violated.

C)    The Standard concerning Fiduciary Duty.

Q7. Rey Sanchez, CFA, covers the specialty chemical industry for Rock Advisory Associates. Until today he has had a buy recommendation on ChemStar, and many of the firm’s customers have purchased shares based upon his recommendation. The firm’s client accounts are divided into two fundamental categories: trading and buy-and-hold accounts. The firm holds discretionary trading authority over the trading accounts, but not the buy-and-hold accounts. Sanchez has recently come to believe that the fundamentals are changing for the worse at ChemStar, and is preparing a sell recommendation. He calls a meeting of the firm’s portfolio managers with accounts holding ChemStar and tells them of the pending release of the sell recommendation. On this basis, the portfolio managers sell all positions in the discretionary accounts but not in the buy-and-hold accounts. Sanchez completes and mails the report to all clients two days later, and, shortly thereafter, many of the buy-and-hold accounts sell their ChemStar positions. With regard to these actions, Sanchez is:

A)    not in violation of the Standard on Fair Dealing; the portfolio managers are in violation of the Standard on Fair Dealing.

B)    in violation of the Standard on Fair Dealing; the portfolio managers are in violation of the Standard on Fair Dealing.

C)    in violation of the Standard on Fair Dealing; the portfolio managers are not in violation of the Standard on Fair Dealing.

Q8. 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 Fiduciary Duty.

B)    The Standard concerning Independence and Objectivity.

C)    The Standard concerning Fair Dealing.

答案和详解如下：

Q6. Mohawk Asset Management buys on-the-run Treasuries at auction for its standard fee accounts. When these move off-the-run, they are placed in performance-based accounts via in-house cross-trades at prevailing market prices, and replaced in the standard fee accounts with new on-the-run issues. Which standard is violated, if any?

A)    The Standard concerning Priority of Transactions.

B)    No Standard is violated.

C)    The Standard concerning Fiduciary Duty.

Correct answer is C)

In addition to being a violation of the Standard concerning Fair Dealing, this constitutes a violation of Mohawk’s Fiduciary Duty. Why? Because the on-the-run issues are benchmarks and trade at lower yields than the off-the-run issues. In essence, the off-the-run issues have marginally higher returns, and this will boost the returns in the performance-based fee accounts. Mohawk is allocating trades based upon compensation arrangements, and this is not permissible under the Code and Standards.

Q7. Rey Sanchez, CFA, covers the specialty chemical industry for Rock Advisory Associates. Until today he has had a buy recommendation on ChemStar, and many of the firm’s customers have purchased shares based upon his recommendation. The firm’s client accounts are divided into two fundamental categories: trading and buy-and-hold accounts. The firm holds discretionary trading authority over the trading accounts, but not the buy-and-hold accounts. Sanchez has recently come to believe that the fundamentals are changing for the worse at ChemStar, and is preparing a sell recommendation. He calls a meeting of the firm’s portfolio managers with accounts holding ChemStar and tells them of the pending release of the sell recommendation. On this basis, the portfolio managers sell all positions in the discretionary accounts but not in the buy-and-hold accounts. Sanchez completes and mails the report to all clients two days later, and, shortly thereafter, many of the buy-and-hold accounts sell their ChemStar positions. With regard to these actions, Sanchez is:

A)    not in violation of the Standard on Fair Dealing; the portfolio managers are in violation of the Standard on Fair Dealing.

B)    in violation of the Standard on Fair Dealing; the portfolio managers are in violation of the Standard on Fair Dealing.

C)    in violation of the Standard on Fair Dealing; the portfolio managers are not in violation of the Standard on Fair Dealing.

Correct answer is B)

Sanchez is in violation of the Standard III(B), Fair Dealing, since he has disseminated his recommendation preferentially to the portfolio managers in advance of making the report available to all clients who hold shares of ChemStar. The portfolio managers are in violation of the Standard since they are effectively giving preferential treatment to the trading accounts over the buy-and-hold accounts in the placement of orders based upon the change in recommendation.

Q8. 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 Fiduciary Duty.

B)    The Standard concerning Independence and Objectivity.

C)    The Standard concerning Fair Dealing.

Correct answer is C)