Reading 6: Preston Partners-LOS b 习题精选 2011, represents, Jacques, conduct, action

土豆妮

Session 2: Ethical and Professional Standards: Application
Reading 6: Preston Partners

LOS b: Explain the appropriate action to take in response to conduct that violates the CFA Institute Code of Ethics and Standards of Professional Conduct.

 

 

Jacques Claudel, a CFA Institute member, represents Vector Funds, a U.S.-based fund manager, in Canada. Although Vector Funds is properly licensed to deal in all Canadian and U.S. securities, its primary objective is to sell United States funds to Canadian institutional investors seeking diversification into the U.S. dollar. While it would be willing to do so if requested by its clients, Vector has not placed trades in Canadian securities since Claudel began working there two years ago.

Prior to joining Vector's Canadian operations, Claudel was an independent asset manager handling the funds of wealthy individuals and small institutions. Most of these accounts remain under his management, under the business name Coup de Gras. Claudel is unclear as to whether his consulting work is in competition with his new employer, as the accounts under his management are invested strictly in Canadian securities, while Vector has not traded Canadian securities. However, just to be on the safe side, he obtained written permission from Vector to continue serving his former clients. His former clients were not notified.

Claudel receives cash compensation for most of the accounts he handles independently, but for one he receives a new car for his personal use every two years, and for another he is compensated with a one-week, expenses-paid holiday in the European country of his choice.

As part of his responsibility, Claudel makes trades for some of his Canadian clients. He runs all of his trades through two brokers, Ace Equity Traders and the Parlay Group. Ace offers some of the best research available on health-care stocks, but charges fairly hefty commissions. Parley has some of the cheapest commissions in Toronto, but provides no research of value to Claudel. Vector claims compliance with the CFA Institute Soft Dollar Standards. 

Henri Bonnet, CFA, a friend of Claudel’s, works on the floor of the Vancouver Stock Exchange. He asks Claudel to establish an account for him at Coup de Gras. Claudel learns that it is Bonnet's intention to manipulate the prices of penny stocks he trades on the exchange, and profit from the price movements in the account at Coup de Gras. Claudel sets up the account, but advises Bonnet that he "will have nothing to do" with the manipulation scheme beyond placing trades as Bonnet directs. 

Claudel is currently pursuing a master's degree in financial economics in the evenings. During the interview with Vector and on his resume he indicated that he "attended Victoria University," giving his estimated date of graduation. He is not sure whether Vector understood that he did not have his master's degree.

 

Which of the following statements about consulting work is CORRECT?

A) In all cases the employee must receive the employer's written permission prior to receiving additional compensation from parties other than the firm. This requirement applies to both monetary and non-monetary compensation.

B) In some circumstances the employee must receive the employer's written permission prior to receiving additional compensation from parties other than the firm. This requirement applies to both monetary and non-monetary compensation.

C) In some circumstances the employee must receive the employer's written permission prior to receiving additional compensation from parties other than the firm. This requirement applies to monetary compensation only.

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Standard IV(A): Loyalty to Employer requires written permission from both the employer and the consulting customer if the work involves competition with the employer. An example of an instance not requiring permission would be if a CFA charterholder who works for a broker wishes to write grants for a nonprofit foundation. In such case, he need not get permission, nor does he need to disclose the compensation. This Standard applies for work that provides either monetary or nonmonetary compensation. (Study Session 2, LOS 5.b)

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土豆妮

Should Claudel decide to terminate his relationship with Vector, which of the following items can he NOT take with him?

A) A list of consulting clients, with addresses and phone numbers.

B) His Rolodex full of contacts in the brokerage and money-management business.

C) A marketing presentation he developed for Vector, but uses primarily in his side business.

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Marketing presentations and any other materials developed for an employer belong to the employer, not the employee, according to Standard IV(A): Loyalty to Employer. The fact that Claudel was already using the marketing presentation on his own in defiance of the Standard does not make it OK for him to take the presentation when he leaves. The rest of the items are Claudel’s personal property. (Study Session 2, LOS 5.b)

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Claudel's statement about his education background is:

A) truthful, and in accord with the Code and Standards.

B) truthful, but not in accord with the Code and Standards.

C) not truthful, and not in accord with the Code and Standards.

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Standard I(C) Misrepresentation states that "members shall not make any statements, orally or in writing, that misrepresent the member's academic or professional credentials." In this case, Claudel's statements are truthful, and are not a violation of the Standard. He could have been more clear, but what he said is undeniably correct. Whether Vector understood what he told them is not his problem, as long as he was truthful and did not attempt to deceive them. (Study Session 1, LOS 2.a)

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Which of the following statements is CORRECT?

A) Bonnet has violated Standard III(B): Fair Dealing, and Claudel has violated Standard I(B): Independence and Objectivity.

B) Bonnet has violated Standard IV(A): Loyalty to Employer, and Claudel has violated Standard I(A): Knowledge of the Law.

C) Bonnet has violated Standard II(A): Material Nonpublic Information, and Claudel has not violated Standard III(A): Loyalty, Prudence, and Care.

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Bonnet violated several Standards, including IV(A) and II(B), by manipulating stock prices and profiting from that manipulation at the expense of other purchasers. Standard IV(A) requires that employees not act to injure the firm or deprive it of profits, and Bonnet’s personal trading and market manipulation crosses well over that line. However, Bonnet did not violate Standard II(A) Material Nonpublic Information because no nonpublic information was involved. Claudel violated Standard I(A) by contributing to Bonnet’s plans to break the law. Under the Code and Standards, Claudel cannot knowingly assist others who are violating the Standards or the law, even if he does not profit personally. While Claudel’s ethics are in question, nothing he did for Bonnet is likely to affect his independence, and he did not violate Standard I(B) Independence and Objectivity. (Study Session 2, LOS 5.b)

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With regard to his consulting work, Claudel is:

A) in competition with Vector because he advises individual investors, and in compliance with the Code and Standards.

B) in competition with Vector because he advises individual investors, and not in compliance with the Code and Standards.

C) not in competition with Vector because Vector doesn’t trade Canadian securities, and in compliance with the Code and Standards.

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Since Vector both possesses the capability and the willingness to trade in Canadian securities, Claudel’s activities clearly put him in competition with his employer. He has received permission from his employer to consult, but has not received permission from his consulting clients to take a job. As such, Claudel is not in compliance with the Code and Standards, as they require written permission from both parties. (Study Session 2, LOS 7.b)

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Assuming that both Ace Equity Traders and the Parlay Group offer best execution, Claudel:

A) must disclose to clients whether client-directed brokerage will prevent him from getting the best execution.

B) can select the broker that refers the most business back to him, as long as any research purchased benefits the client whose account is being traded.

C) must direct all the trades for clients who do not wish to own health-care stocks to the Parlay Group.

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The Standards require that purchased brokerage directly benefits the client. Clients who do not hold health-care stocks get no benefit from Ace’s research, so Claudel is obligated to send their trades to the broker with the lowest transaction costs. While disclosing the risks of client-directed brokerage is a good idea, it is only recommended, not required, in the Soft Dollar Standards. Referrals can play no part in the broker-selection process. The Standards require the investment manager to keep all the records required to demonstrate compliance with the Standards – the broker’s recordkeeping prowess is not relevant. (Study Session 1, LOS 3.b)