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2. Disclosure of Conflicts to Employers
#analyst-notes #and-actions #code-of-ethics-and-standards-of-professional-conduct #vi-conflicts-of-interest

You should:

  • Disclose to employer all matters, such as beneficial interest (ownership of securities), corporate directorships, trusteeships and any special relationships, that reasonably could be expected to interfere with their duties to employers or abilities to make unbiased and objective recommendations.
  • Comply with any prohibitions on activities imposed by their employers if a conflict of interest exists.
  • Discuss any action involving conflict of interest with their firm's compliance officer.

Many firms restrict employees' investment activities to avoid conflicts of interest. Members should obey their employers' guidelines. However, you are not required to desist from personal trading and board memberships, if your employer allows them.

Procedures for compliance

  • Report to employers any beneficial interest and special relationships (e.g., corporate directorships) that may be considered a conflict of interest.
  • Discuss with compliance officers or supervisors before taking any actions that could lead to such conflict.

Example 1

You come from a wealthy family that made much of its fortune in the automotive industry. You and your family still have a considerable position in several stocks in the industry. You are employed as an industry analyst in the automotive sector. You are obliged to disclose your beneficial ownership to your employer.

Example 2

Mark makes personal trades without compliance with his firm's prohibition as the firm has no intention of trading these stocks and Mark does not cover that particular industry within the firm. Mark violates the standards for ignoring the firm's trading prohibitions. He should realize that the firm's policy is designed to prevent material conflict of interest and the appearance of conflict.

Example 3

John acts as a trustee for another company. However, he has NOT disclosed his involvement to his employer. He violates the standard, as it prohibits a member's conflict of interest that might be detrimental to the employer's business. Being a trustee can be time-consuming, and thus detrimental to the firm.

Example 4

An investment manager with a large firm believes that his firm would not be interested in equity-linked notes, and as such purchases one for himself. One month later he prepares a report for his firm suggesting that they should start investing in equity-linked notes. The manager has violated this standard; his ability to make an unbiased decision is impaired since he already owns the notes himself.
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