prashantsahni

Which of the following is a CORRECT statement of a member's duty under the Code and Standards?

A) In the absence of specific applicable law or other regulatory requirements, the Code and Standards govern the member's actions.

B) A member is required to comply only with applicable local laws, rules, regulations, or customs even though the CFA Institute Code and Standards may impose a higher degree of responsibility or a higher duty on the member.

C) A member who trades securities in a foreign securities market where no applicable local laws or stock exchange rules regulate the use of material nonpublic information may take investment action based on this information.

---

The Code and Standards represent a minimum level of guidance for members’ actions, not a maximum level. The key to remember here is that whether the local area does or does not have standards governing member’s actions, one must follow the stricter standard environment.

prashantsahni

Ernesto Vivaldo is a CFA candidate. He is working in the branch office of an American-based investment company in Belgium. Vivaldo is a citizen of Venezuela. In his country, a portfolio manager is not required to disclose referral fees. Belgian law does not allow referral fees for portfolio managers. Vivaldo has been offered a deal that involves a referral fee. Vivaldo should follow the requirements of:

A) Venezuela.

B) Belgium.

C) CFA Institute.

---

According to Standard I(A) Knowledge of the Law, CFA candidates and current CFA Institute members must follow whichever law is stricter. In this case, the strictest laws are those of Belgium.

prashantsahni

Jason Blackwell, CFA, works as an investment manager for Mega Capital, a large multinational brokerage firm. He resides in a country whose applicable law is stricter than the Code and Standards but does business with clients in a country whose applicable law is less strict than the Code and Standards. Blackwell decides to follow the Code and Standards for clients in the less strict country. While Blackwell is still employed at Mega, Lego Associates verbally asks Blackwell to review client portfolios during evenings and weekends for a fee. Blackwell gets written consent from his immediate supervisor at Mega to undertake this independent activity for a one-month trial basis.Which of the following statements about Blackwell’s actions involving Standard I, Professionalism, and Standard IV(A), Loyalty is most accurate? Blackwell:

A) violated both Standard I and Standard IV(A).

B) violated Standard I but did not violate Standard IV(A).

C) did not violate either Standard I or Standard IV(A).

---

Blackwell violated Standard I, Professionalism. Because the applicable laws in his resident county were stricter than the Code and Standards, he must adhere to the more strict applicable law.

prashantsahni

A member or candidate who suspects that a colleague is violating the law should most appropriately:

A) consult with the company counsel to determine if in fact a law is being violated.

B) report the illegal activity to CFA Institute Professional Standards Review Board for action.

C) report all illegal activities to the appropriate regulatory agency.

---

According to Standard I(A), Knowledge of the Law, members and candidates shall not knowingly participate or assist in any violation of laws, rules, regulations, or the Code and Standards.
When members suspect a client or a colleague of planning or engaging in ongoing illegal activities, members should take the following actions:

• Consult counsel to determine if the conduct is, in fact, illegal.
• Disassociate from any illegal or unethical activity. When members have reasonable grounds to believe that a client’s or employee’s activities are illegal or unethical, the members should disassociate from these activities and urge their firm to attempt to persuade the perpetrator to cease such activity.

Note: The Code and Standards do not require that members report legal violations to the appropriate governmental or regulatory organizations, but such disclosure may be prudent in certain circumstances.

prashantsahni

An analyst, who is a CFA charterholder, is working in a foreign country. Which of the following statements is CORRECT? The analyst is:

A) governed by the laws and standards of the country in which he is living and working.

B) governed by CFA Institute's Code and Standards.

C) covered by the strictest of the following laws and rules: his own country's, the foreign country's or CFA Institute's Code and Standards.

---

The analyst is covered by the strictest of the following laws and rules: his own country’s, the foreign country’s or CFA Institute’s Code and Standards.

prashantsahni

Joan Platt, CFA, operates an investment advisory service in New York but maintains an office in Xania. Xania recently established a stock market, which is not very efficient. None of the Xanian stocks trade in the U.S. market. Xania legally permits the use of material inside information. Platt believes that using inside information would help her compete against other Xanian investment advisors and also help some of her Xanian clients reach their investment objectives. Platt is considering adopting local investment practices in Xania. According to CFA Institute Standards of Professional Conduct, Platt may:

A) use material inside information because Xania legally permits this practice.

B) use material inside information, but only after notifying CFA Institute.

C) not use material inside information.

---

Because applicable law involving material inside information is less strict than the Code and Standards, Platt must adhere to the Code and Standards. Standard II(A) prohibits against use of material nonpublic information.

prashantsahni

Benito Salvatore, CFA, is licensed in the established country of Oldworld but has clients and makes investments in the emerging country of Newworld. The regulations of Oldworld prohibit licensed investment professionals from taking gifts or gratuities in any amount from vendors or persons connected with potential investments. The laws of Newworld are silent on this issue. Unsolicited, Salvatore is offered a vase worth US $75 by a Newworld trust company and a bronze statue worth US $200 by a Newworld company that Salvatore is considering as a potential investment.Salvatore is:

A) permitted to accept both gifts.

B) permitted to accept the vase but not the statue.

C) not permitted to accept either gift.

---

Under Standard I(A), Salvatore must, as a CFA charterholder, apply the CFA Institute Code and Standards or the controlling law, whichever is stricter. In this instance the stricter laws of Oldworld, where Salvatore is licensed, apply to prohibit the gifts, even though the gifts are offered in Newworld.

prashantsahni

A money management firm has the following policy concerning new recommendations: When a new recommendation is made, each portfolio manager estimates the likely transaction size for each of their clients. Clients are notified of the new recommendation in the order of their estimated transaction size—largest first. All clients have signed a form where they acknowledge and consent to this allocation procedure. With respect to Standard III(B), Fair Dealing, this is:

A) not a violation because the clients have signed the consent form.

B) a violation of the standard.

C) not a violation because the clients are aware of the policy.

---

Such a policy is a violation of the Standard and client acknowledgement and/or consent does not change that fact.

prashantsahni

Which of the following statements is least accurate regarding being a part of Standard III(B), Fair Dealing?

A) Shorten the time between decision and dissemination.

B) At the same time notify clients for whom an investment is suitable of a new investment recommendation.

C) Maintain a list of clients and their holdings.

---

All of these are part of Standard III(B) except notifying clients at the same time. Standard III(B) states that clients for whom the investment is suitable should be notified at approximately the same time.

prashantsahni

An investment advisor goes straight from a research seminar to a meeting with a prospective new client with whom she has never been in contact. The advisor is very excited about the information she just received in the seminar and begins showing the prospect the new ideas her firm is coming up with. This is most likely a violation of:

A) both of these.

B) Standard III(B), Fair Dealing.

C) Standard III(C), Suitability.

---

It is a violation of Standard III(B) because the advisor should act first on behalf of existing clients whose needs and characteristics she already knows. It is a violation of Standard III(C) because she has never met the prospect and does not know if the new ideas are appropriate for the prospect. Thus, “both of these” is the best response.