on 04-Apr-2016 (Mon)

The basic structure for enforcing the Code and Standards: Rules of Procedure.

The Disciplinary Review Committee (DRC) enforces the Code and Standards.

Professional Conduct staff monitor compliance through Professional Conduct Statements, public complaints, public information, and media reports.

The rules related to information-gathering and conviction follow a criminal justice system approach. The procedures require a careful investigation of the charges followed by a hearing, findings and appeal.

An overview follows:

• Grounds for Discipline. Any act which violates the Code and Standards.

• Investigation by Designated Officer (DO). The officer may conclude the inquiry with no disciplinary sanction, issue a cautionary letter, or continue proceedings to discipline the member or candidate. If the investigation determines that a violation occurred, a disciplinary sanction is recommended. The member or candidate may accept the recommended sanction or proceed to a hearing panel.

• Hearing. If the member rejects the proposed sanction, a case against the member will be prepared and take place in front of a hearing panel of three or more members.

Authorized sanctions include suspension or revocation of membership/designation, private/public censure, and private reprimand.

Members and Candidates must:

• Act with integrity, competence, diligence, respect, and in an ethical manner with the public, clients, prospective clients, employers, employees, colleagues in the investment profession, and other participants in the global capital markets.

• Place the integrity of the investment profession and the interests of clients above their own personal interests.

• Use reasonable care and exercise independent professional judgment when conducting investment analysis, making investment recommendations, taking investment actions, and engaging in other professional activities.

• Practice and encourage others to practice in a professional and ethical manner that will reflect credit on themselves and the profession.

• Promote the integrity of, and uphold the rules governing, capital markets.

• Maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals.

The Code of Ethics establishes the framework for ethical decision-making in the investment profession.

It applies to CFA Institute's members, CFA charterholders and CFA candidates.

I. PROFESSIONALISM

A. Knowledge of the Law. Members and candidates must understand and comply with all applicable laws, rules, and regulations (including the CFA Institute Code of Ethics and Standards of Professional Conduct) of any government, regulatory organization, licensing agency, or professional association governing their professional activities. In the event of conflict, members and candidates must comply with the more strict law, rule, or regulation. Members and candidates must not knowingly participate or assist in and must dissociate from any violation of such laws, rules, or regulations.

B. Independence and Objectivity. Members and candidates must use reasonable care and judgment to achieve and maintain independence and objectivity in their professional activities. Members and candidates must not offer, solicit, or accept any gift, benefit, compensation, or consideration that reasonably could be expected to compromise their own or another's independence and objectivity.

C. Misrepresentation. Members and candidates must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities.

D. Misconduct. Members and candidates must not engage in any professional conduct involving dishonesty, fraud, or deceit or commit any act that reflects adversely on their professional reputation, integrity, or competence.

II. INTEGRITY OF CAPITAL MARKETS

A. Material Nonpublic Information. Members and candidates who possess material nonpublic information that could affect the value of an investment must not act or cause others to act on the information.

B. Market Manipulation. Members and candidates must not engage in practices that distort prices or artificially inflate trading volume with the intent to mislead market participants.

III. DUTIES TO CLIENTS

A. Loyalty, Prudence, and Care. Members and candidates have a duty of loyalty to their clients and must act with reasonable care and exercise prudent judgment. Members and candidates must act for the benefit of their clients and place their clients' interests before their employer's or their own interests.

B. Fair Dealing. Members and candidates must deal fairly and objectively with all clients when providing investment analysis, making investment recommendations, taking investment action, or engaging in other professional activities.

C. Suitability.

• When members and candidates are in an advisory relationship with a client, they must:
  a. Make a reasonable inquiry into a client's or prospective client's investment experience, risk and return objectives, and financial constraints prior to making any investment recommendation or taking investment action and must reassess and update this information regularly.
  b. Determine that an investment is suitable to the client's financial situation and consistent with the client's written objectives, mandates, and constraints before making an investment recommendation or taking investment action.
  c. Judge the suitability of investments in the context of the client's total portfolio.
• When members and candidates are responsible for managing a portfolio to a specific mandate, strategy, or style, they must only make investment recommendations or take investment actions that are consistent with the stated objectives and constraints of that portfolio.

D. Performance Presentation. When communicating investment performance information, members or candidates must make reasonable efforts to ensure that it is fair, accurate, and complete.

E. Preservation of Confidentiality. Members and candidates must keep information about current, former, and prospective clients confidential unless:

• The infor

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I. PROFESSIONALISM

A. Knowledge of the Law.

Members and Candidates must understand and comply with all applicable laws, rules, and regulations (including CFA Institute's Code of Ethics and Standards of Professional Conduct) of any government, regulatory organization, licensing agency, or professional association governing their professional activities. In the event of conflict, Members and Candidates must comply with the more strict law, rule, or regulation. Members and candidates must not knowingly participate or assist in and must dissociate from any violation of such laws, rules, or regulations.

This standard adopts principles that apply to the general activities of members and candidates. As with any service there are certain rules and regulations that members and candidates need to abide by, although they are not required to have detailed knowledge of all laws.

A. Relationship between the Code and Standards and local law.

Members and candidates should always aspire to the highest level of ethical conduct. This statement assists members in avoiding legal and ethical traps and violations of the Code of Ethics.

In general, members in all countries should comply at all times with the Code and Standards. Since laws in different countries may establish different standards, the rule of thumb is to choose the stricter regulations.

• If the laws are tougher than the Code and Standards, adhere to the laws.
• If there are no laws, or if the Code and Standards are tougher, adhere to the Code and Standards.
• If a member or candidate lives or works in a foreign country, or works for foreign firms outside of his or her own country, he or she should comply with the strictest of his/her country's laws, the foreign country's laws, and the Code and Standards.

Example

You are working in the foreign office of a U.S.-based firm. Analysts in this foreign country routinely solicit insider information and use it as the basis for trading decisions. You are told that this is not illegal in this country. In this case, the Code and Standards are stricter. They prohibit use of material nonpublic information. You should refrain from trading on the basis of insider information.

B. Don't participate or assist in violations.

Don't knowingly break or help others break laws. If a member:

• Feels that a standard or law has been violated (e.g., receiving information contradictory to a registration statement), he or she should seek the advice of the firm's counsel. If the member believes that the counsel is both competent and unbiased and he or she follows the counsel's advice, there is no violation.
• Knows that a standard or law has been violated (e.g., discovering that a client has knowingly misstated information on a prospectus), he or she should report the incident to the appropriate supervisory person in the firm. If the situation is not remedied, the member should disassociate from the situation. He or she may also seek legal advice to see if other actions should be taken.

Note:

• Members are not required by the Code and Standards to report violations to the appropriate governmental or regulatory organizations. However, if the law requires an individual to report, he or she must do so.
• Members are encouraged, but not required, to report violations to CFA Institute.

Example

An associate of yours is engaging in illegal trading practices and he tells you to refrain from disclosing this because it will make the firm look bad and it is highly profitable. You should choose one of the three actions above. If you seek legal counsel and are told that the activity is actually not illegal, you have met your obligation. This assumes that you believe the legal counsel to be competent. If you report your associa...

I. PROFESSIONALISM

B. Independence and Objectivity.

Members and Candidates must use reasonable care and judgment to achieve and maintain independence and objectivity in their professional activities. Members and Candidates must not offer, solicit, or accept any gift, benefit, compensation, or consideration that reasonably could be expected to compromise their own or another's independence and objectivity.

Every member must avoid situations that may result in a potential conflict of interest. External sources may try to influence the investment process by offering investment managers a variety of perks. Excessive gifts or lavish investor relation functions could prejudice a member's opinions about a sponsor. One type of benefit is the allocation of shares in oversubscribed IPOs to investment managers for their personal accounts. Every member shall avoid situations that might cause or be perceived to cause a loss of independence or objectivity in recommending investments or taking investment action.

Modest gifts and entertainment are acceptable. For example, gifts that do not exceed $100 may be accepted, as well as entertainment.

Gifts from clients can be distinguished from gifts given by other parties seeking to influence a member to the detriment of clients. Gifts from clients are deemed less likely to impair a member's independence than gifts from other parties seeking to influence the member's outlook. Members and candidates must disclose to their employers any such benefits from clients.

Example 1

You are an analyst for the banking industry. The head of investor relations for one of the larger firms in this industry offers to take you to dinner at a posh restaurant and discuss the upcoming quarterly earnings figures. He provides you with a new state-of-the-art titanium golf club as his limo drops you off at the end of the evening. He calls you the next day to ask if your report on his firm is progressing and indicates that there is a job waiting for you at the bank if you decide to leave your current position. First, the bank officer may have violated his fiduciary duty to his shareholders if he provided you with material nonpublic information. Regardless, you have been wined and dined and received a gift and a job offer from a senior officer of a firm you evaluate. Even if these inducements do not compromise your independence and objectivity, they may provide that perception. This violates the standard.

Example 2

An analyst follows the stock of company XYZ. He is invited by XYZ for a visit to the company. XYZ pays all travel expenses for him. In general, when allowing companies to pay for expenses, analysts should ensure that such arrangements do not impinge on their independence and objectivity. In this case, as long as the trip is strictly for business without lavish hospitality, such payment is acceptable.

Example 3

An analyst is asked by a firm's executives to issue favorable recommendations to secure the client's business. The analyst should conduct the review and make the recommendation based on his or her own independent and objective view. Note that members may experience pressure from their own firms to issue favorable reviews of certain companies. In a full-service investment house, the corporate finance department may be an underwriter for a company's securities and be loath to antagonize that company by publishing negative research reports.

Example 4

Steve, a portfolio manager, directs a large amount of his commission business to a London brokerage house. In appreciation for all the business, the London brokerage house gives Steve two tickets to travel anywhere in Europe. Steve fails to disclose receiving this package to his supervisor. Steve has violated the standard because accepting these perks, worth more than $100, may hinder his independence and objectivity.

Procedur...

I. PROFESSIONALISM

C. Misrepresentation.

Members and Candidates must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities.

Members and candidates shall not make any statements, orally or in writing, that misrepresent:

• The services that they or their firms are capable of performing.
• Their qualifications or the qualifications of their firms.
• Their academic or professional credentials.

A misrepresentation is any untrue statement of a fact or any statement that is otherwise false or misleading. This standard relates to misrepresentations by members about their qualifications and services, and it disallows any misleading guarantees about investments and their returns.

Members and candidates shall not make or imply, orally or in writing, any assurances or guarantees regarding any investment except to communicate accurate information regarding the terms of the investment instrument and the issuer's obligations under the instrument. It prohibits statements or assumptions that an investment is "guaranteed," or that superior returns can be expected based on the member's past success.

This standard applies to oral representations, advertising, electronic communications (including web pages and emails) and written materials (whether publicly disseminated or not).

Note: This standard does not rule out correct statements that some investments are actually guaranteed in some way with guaranteed returns. Examples of these types of investments would be insurance contracts or short-term treasury securities.

This standard also prohibits plagiarism in the preparation of material for distribution to employers, associates, clients, prospects or the general public. Plagiarism involves copying or using substantially the same materials as those prepared by others without acknowledging the source of that material. The only exception is copying factual information, as published by several recognized financial institutions, as well as statistical information.

• Members and candidates should always attribute quotations, projections, data, model/product ideas, and methodologies to their sources and/or authors.
• This standard applies to written materials, oral communications, visits with clients, use of audio/video media, and electronic data transfer.
• Members and candidates can use recognized sources (S&P, Moody's) of factual information (information that is already in the public realm) without acknowledgement.
• Situations to which this Standard applies also depend on whom the member is representing. Members are not required to attribute ideas, methodologies, etc. developed by people within their firms when speaking with clients and prospects.
• Members and candidates should keep copies of materials used in preparing research reports.

In ethical terms, a member or candidate indulging in plagiarism is not conducting himself or herself with integrity. By plagiarizing, he or she is not only stealing the ideas of others, but also exposing himself or herself to violations of other standards by making recommendations that may not have a reasonable basis and may not avoid material misrepresentations.

Procedures for compliance

Members can prevent unintentional misrepresentations of the qualifications of services the member or the member's firm is capable of performing if each member understands the limit of the individual's or firm's capabilities and the need to be accurate and complete in presentations.

Firms can provide guidance for employees who make written or oral presentations to clients or potential clients by providing a written list of the firm's available services and a description of the firm's qualification, and compensations that are both accurate and suitab...

The basic structure for enforcing the Code and Standards: Rules of Procedure.

The Disciplinary Review Committee (DRC) enforces the Code and Standards.

Professional Conduct staff monitor compliance through Professional Conduct Statements, public complaints, public information, and media reports.

The rules related to information-gathering and conviction follow a criminal justice system approach. The procedures require a careful investigation of the charges followed by a hearing, findings and appeal.

An overview of Disciplinary Action follows:

• Grounds for Discipline. Any act which violates the Code and Standards.

• Investigation by Designated Officer (DO). The officer may conclude the inquiry with no disciplinary sanction, issue a cautionary letter, or continue proceedings to discipline the member or candidate. If the investigation determines that a violation occurred, a disciplinary sanction is recommended. The member or candidate may accept the recommended sanction or proceed to a hearing panel.

• Hearing. If the member rejects the proposed sanction, a case against the member will be prepared and take place in front of a hearing panel of three or more members.

Authorized sanctions include suspension or revocation of membership/designation, private/public censure, and private reprimand.

Members and Candidates must:

• Act with integrity, competence, diligence, respect, and in an ethical manner with the public, clients, prospective clients, employers, employees, colleagues in the investment profession, and other participants in the global capital markets.

Members and Candidates must:

• Place the integrity of the investment profession and the interests of clients above their own personal interests.

Members and Candidates must:

• Use reasonable care and exercise independent professional judgment when conducting investment analysis, recommendations or actions, and engaging in other professional activities.

Members and Candidates must:

• Practice and encourage others to practice in a professional and ethical manner that will reflect credit on themselves and the profession.

Members and Candidates must:

• Promote the integrity of, and uphold the rules governing, capital markets.

Members and Candidates must:

• Maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals.

The Code of Ethics establishes the framework for ethical decision-making in the investment profession.

I. PROFESSIONALISM

A. Knowledge of the Law. Members and candidates must understand and comply with all applicable laws, rules, and regulations (including the CFA Institute Code of Ethics and Standards of Professional Conduct) of any government, regulatory organization, licensing agency, or professional association governing their professional activities. In the event of conflict, members and candidates must comply with the more strict law, rule, or regulation. Members and candidates must not knowingly participate or assist in and must dissociate from any violation of such laws, rules, or regulations.

B. Independence and Objectivity. Members and candidates must use reasonable care and judgment to achieve and maintain independence and objectivity in their professional activities. Members and candidates must not offer, solicit, or accept any gift, benefit, compensation, or consideration that reasonably could be expected to compromise their own or another's independence and objectivity.

C. Misrepresentation. Members and candidates must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities.

D. Misconduct. Members and candidates must not engage in any professional conduct involving dishonesty, fraud, or deceit or commit any act that reflects adversely on their professional reputation, integrity, or competence.

A. Knowledge of the Law. Members and candidates must understand and comply with all applicable laws, rules, and regulations (including the CFA Institute Code of Ethics and Standards of Professional Conduct) of any government, regulatory organization, licensing agency, or professional association governing their professional activities. In the event of conflict, members and candidates must comply with the more strict law, rule, or regulation. Members and candidates must not knowingly participate or assist in and must dissociate from any violation of such laws, rules, or regulations.

A. Knowledge of the Law

• In the event of conflict, members and candidates must comply with the more strict law, rule, or regulation.

A. Knowledge of the Law

• Members and candidates must not knowingly participate or assist in and must dissociate from any violation of such laws, rules, or regulations.

B. Independence and Objectivity. Members and candidates must use reasonable care and judgment to achieve and maintain independence and objectivity in their professional activities. Members and candidates must not offer, solicit, or accept any gift, benefit, compensation, or consideration that reasonably could be expected to compromise their own or another's independence and objectivity.

B. Independence and Objectivity. Members and candidates must use reasonable care and judgment to achieve and maintain independence and objectivity in their professional activities.

B. Independence and Objectivity.

• Members and candidates must not offer, solicit, or accept any gift, benefit, compensation, or consideration that reasonably could be expected to compromise their own or another's independence and objectivity.

C. Misrepresentation. Members and candidates must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities.

D. Misconduct. Members and candidates must NOT engage in any professional conduct involving dishonesty, fraud, or deceit or commit any act that reflects adversely on their professional reputation, integrity, or competence.

II. INTEGRITY OF CAPITAL MARKETS

A. Material Nonpublic Information. Members and candidates who possess material nonpublic information that could affect the value of an investment must not act or cause others to act on the information.

B. Market Manipulation. Members and candidates must not engage in practices that distort prices or artificially inflate trading volume with the intent to mislead market participants.

A. Material Nonpublic Information. Members and candidates who possess material nonpublic information that could affect the value of an investment must not act or cause others to act on the information.

B. Market Manipulation. Members and candidates must not engage in practices that distort prices or artificially inflate trading volume with the intent to mislead market participants.

III. DUTIES TO CLIENTS

A. Loyalty, Prudence, and Care. Members and candidates have a duty of loyalty to their clients and must act with reasonable care and exercise prudent judgment. Members and candidates must act for the benefit of their clients and place their clients' interests before their employer's or their own interests.

B. Fair Dealing. Members and candidates must deal fairly and objectively with all clients when providing investment analysis, making investment recommendations, taking investment action, or engaging in other professional activities.

C. Suitability.

• When members and candidates are in an advisory relationship with a client, they must:
  a. Make a reasonable inquiry into a client's or prospective client's investment experience, risk and return objectives, and financial constraints prior to making any investment recommendation or taking investment action and must reassess and update this information regularly.
  b. Determine that an investment is suitable to the client's financial situation and consistent with the client's written objectives, mandates, and constraints before making an investment recommendation or taking investment action.
  c. Judge the suitability of investments in the context of the client's total portfolio.
• When members and candidates are responsible for managing a portfolio to a specific mandate, strategy, or style, they must only make investment recommendations or take investment actions that are consistent with the stated objectives and constraints of that portfolio.

D. Performance Presentation. When communicating investment performance information, members or candidates must make reasonable efforts to ensure that it is fair, accurate, and complete.

E. Preservation of Confidentiality. Members and candidates must keep information about current, former, and prospective clients confidential unless:

• The information concerns illegal activities on the part of the client or prospective client,
• Disclosure is required by law, or
• The client or prospective client permits disclosure of the information

A. Loyalty, Prudence, and Care. Members and candidates have a duty of loyalty to their clients and must act with reasonable care and exercise prudent judgment. Members and candidates must act for the benefit of their clients and place their clients' interests before their employer's or their own interests.

A. Loyalty, Prudence, and Care.

• Members and candidates must act for the benefit of their clients and place their clients' interests before their employer's or their own interests.

B. Fair Dealing. Members and candidates must deal fairly and objectively with all clients when providing investment analysis, making investment recommendations, taking investment action, or engaging in other professional activities.

C. Suitability.

• When members and candidates are in an advisory relationship with a client, they must:
  a. Make a reasonable inquiry into a client's or prospective client's investment experience, risk and return objectives, and financial constraints prior to making any investment recommendation or taking investment action and must reassess and update this information regularly.
  b. Determine that an investment is suitable to the client's financial situation and consistent with the client's written objectives, mandates, and constraints before making an investment recommendation or taking investment action.
  c. Judge the suitability of investments in the context of the client's total portfolio.
• When members and candidates are responsible for managing a portfolio to a specific mandate, strategy, or style, they must only make investment recommendations or take investment actions that are consistent with the stated objectives and constraints of that portfolio.

When members and candidates are responsible for managing a portfolio to a specific mandate, strategy, or style, they must only make investment recommendations or take investment actions that are consistent with the stated objectives and constraints of that portfolio.

Suitability:

When members and candidates are in an advisory relationship with a client, they must:
a. Make a reasonable inquiry into a client's or prospective client's investment experience, risk and return objectives, and financial constraints prior to making any investment recommendation or taking investment action and must reassess and update this information regularly.
b. Determine that an investment is suitable to the client's financial situation and consistent with the client's written objectives, mandates, and constraints before making an investment recommendation or taking investment action.
c. Judge the suitability of investments in the context of the client's total portfolio.

D. Performance Presentation. When communicating investment performance information, members or candidates must make reasonable efforts to ensure that it is fair, accurate, and complete.

E. Preservation of Confidentiality. Members and candidates must keep information about current, former, and prospective clients confidential unless:

• The information concerns illegal activities on the part of the client or prospective client,
• Disclosure is required by law, or
• The client or prospective client permits disclosure of the information

IV. DUTIES TO EMPLOYERS

A. Loyalty. In matters related to their employment, members and candidates must act for the benefit of their employer and not deprive their employer of the advantage of their skills and abilities, divulge confidential information, or otherwise cause harm to their employer.

B. Additional Compensation Arrangements. Members and candidates must not accept gifts, benefits, compensation, or consideration that competes with, or might reasonably be expected to create a conflict of interest with, their employer's interests unless they obtain written consent from all parties involved.

C. Responsibilities of Supervisors. Members and candidates must make reasonable efforts to detect and prevent violations of applicable laws, rules, regulations, and the Code and Standards by anyone subject to their supervision or authority.

A. Loyalty. In matters related to their employment, members and candidates must act for the benefit of their employer and not deprive their employer of the advantage of their skills and abilities, divulge confidential information, or otherwise cause harm to their employer.

B. Additional Compensation Arrangements. Members and candidates must not accept gifts, benefits, compensation, or consideration that competes with, or might reasonably be expected to create a conflict of interest with, their employer's interests unless they obtain written consent from all parties involved.

C. Responsibilities of Supervisors. Members and candidates must make reasonable efforts to detect and prevent violations of applicable laws, rules, regulations, and the Code and Standards by anyone subject to their supervision or authority.

V. INVESTMENT ANALYSIS, RECOMMENDATIONS, AND ACTIONS

A. Diligence and Reasonable Basis. Members and candidates must:

• Exercise diligence, independence, and thoroughness in analyzing investments, making investment recommendations, and taking investment actions.
• Have a reasonable and adequate basis, supported by appropriate research and investigation, for any investment analysis, recommendation, or action.

B. Communication with Clients and Prospective Clients. Members and candidates must:

• Disclose to clients and prospective clients the basic format and general principles of the investment processes used to analyze investments, select securities, and construct portfolios, and must promptly disclose any changes that might materially affect those processes.
• Use reasonable judgment in identifying which factors are important to their investment analyses, recommendations, or actions and include those factors in communications with clients and prospective clients.
• Distinguish between fact and opinion in the presentation of investment analysis and recommendations.

C. Record Retention. Members and candidates must develop and maintain appropriate records to support their investment analysis, recommendations, actions, and other investment-related communications with clients and prospective clients.

A. Diligence and Reasonable Basis. Members and candidates must:

• Exercise diligence, independence, and thoroughness in analyzing investments, making investment recommendations, and taking investment actions.
• Have a reasonable and adequate basis, supported by appropriate research and investigation, for any investment analysis, recommendation, or action.

B. Communication with Clients and Prospective Clients. Members and candidates must:

• Disclose to clients and prospective clients the basic format and general principles of the investment processes used to analyze investments, select securities, and construct portfolios, and must promptly disclose any changes that might materially affect those processes.
• Use reasonable judgment in identifying which factors are important to their investment analyses, recommendations, or actions and include those factors in communications with clients and prospective clients.
• Distinguish between fact and opinion in the presentation of investment analysis and recommendations.

Disclose to clients and prospective clients the basic format and general principles of the investment processes used to analyze investments, select securities, and construct portfolios, and must promptly disclose any changes that might materially affect those processes.

Use reasonable judgment in identifying which factors are important to their investment analyses, recommendations, or actions and include those factors in communications with clients and prospective clients.

Distinguish between fact and opinion in the presentation of investment analysis and recommendations.

C. Record Retention. Members and candidates must develop and maintain appropriate records to support their investment analysis, recommendations, actions, and other investment-related communications with clients and prospective clients.

VI. CONFLICTS OF INTEREST

A. Disclosure of Conflicts. Members and candidates must make full and fair disclosure of all matters that could reasonably be expected to impair their independence and objectivity or interfere with respective duties to their clients, prospective clients, and employer. Members and candidates must ensure that such disclosures are prominent, are delivered in plain language, and communicate the relevant information effectively.

B. Priority of Transactions. Investment transactions for clients and employers must have priority over investment transactions in which a member or candidate is the beneficial owner.

C. Referral Fees. Members and candidates must disclose to their employer, clients, and prospective clients, as appropriate, any compensation, consideration, or benefit received from or paid to others for the recommendation of products or services.

VII. RESPONSIBILITIES AS A CFA INSTITUTE MEMBER OR CFA CANDIDATE

A. Conduct as Members and Candidates in the CFA Program. Members and candidates must not engage in any conduct that compromises the reputation or integrity of CFA Institute or the CFA designation or the integrity, validity, or security of the CFA examinations.

B. Reference to CFA Institute, the CFA Designation, and the CFA Program. When referring to CFA Institute, CFA Institute membership, the CFA designation, or candidacy in the CFA Program, members and candidates must not misrepresent or exaggerate the meaning or implications of membership in CFA Institute, holding the CFA designation, or candidacy in the CFA program.

A. Relationship between the Code and Standards and local law.

Members and candidates should always aspire to the highest level of ethical conduct. This statement assists members in avoiding legal and ethical traps and violations of the Code of Ethics.

In general, members in all countries should comply at all times with the Code and Standards. Since laws in different countries may establish different standards, the rule of thumb is to choose the stricter regulations.

• If the laws are tougher than the Code and Standards, adhere to the laws.
• If there are no laws, or if the Code and Standards are tougher, adhere to the Code and Standards.
• If a member or candidate lives or works in a foreign country, or works for foreign firms outside of his or her own country, he or she should comply with the strictest of his/her country's laws, the foreign country's laws, and the Code and Standards.

Example

You are working in the foreign office of a U.S.-based firm. Analysts in this foreign country routinely solicit insider information and use it as the basis for trading decisions. You are told that this is not illegal in this country. In this case, the Code and Standards are stricter. They prohibit use of material nonpublic information. You should refrain from trading on the basis of insider information.

Members in all countries should comply at all times with the Code and Standards. Since laws in different countries may establish different standards, the rule of thumb is to choose the stricter regulations.

• If the laws are tougher than the Code and Standards, adhere to the laws.
• If there are no laws, or if the Code and Standards are tougher, adhere to the Code and Standards.
• If a member or candidate lives or works in a foreign country, or works for foreign firms outside of his or her own country, he or she should comply with the strictest of his/her country's laws, the foreign country's laws, and the Code and Standards.

Example

You are working in the foreign office of a U.S.-based firm. Analysts in this foreign country routinely solicit insider information and use it as the basis for trading decisions. You are told that this is not illegal in this country. In this case, the Code and Standards are stricter. They prohibit use of material nonpublic information. You should refrain from trading on the basis of insider information.

B. Don't participate or assist in violations.

Don't knowingly break or help others break laws. If a member:

• Feels that a standard or law has been violated (e.g., receiving information contradictory to a registration statement), he or she should seek the advice of the firm's counsel. If the member believes that the counsel is both competent and unbiased and he or she follows the counsel's advice, there is no violation.
• Knows that a standard or law has been violated (e.g., discovering that a client has knowingly misstated information on a prospectus), he or she should report the incident to the appropriate supervisory person in the firm. If the situation is not remedied, the member should disassociate from the situation. He or she may also seek legal advice to see if other actions should be taken.

Note:

• Members are not required by the Code and Standards to report violations to the appropriate governmental or regulatory organizations. However, if the law requires an individual to report, he or she must do so.
• Members are encouraged, but not required, to report violations to CFA Institute.

Example

An associate of yours is engaging in illegal trading practices and he tells you to refrain from disclosing this because it will make the firm look bad and it is highly profitable. You should choose one of the three actions above. If you seek legal counsel and are told that the activity is actually not illegal, you have met your obligation. This assumes that you believe the legal counsel to be competent. If you report your associate's activity to your supervisor and are told to ignore it, you should take steps to disassociate yourself from the practice.

C. Procedures for compliance.

Members and candidates can acquire and maintain knowledge about applicable laws, rules, and regulations by:

• Maintaining current files of applicable statutes, rules, regulations and important cases in a readily accessible manner and encouraging the employer to distribute such information to members for this purpose.
• Keeping informed about any changes of laws. Counsel can provide assistance in this regard.
• Reviewing procedures. Compliance procedures should be reviewed on a regular basis to ensure that they reflect current laws.

Every member must avoid situations that may result in a potential conflict of interest. External sources may try to influence the investment process by offering investment managers a variety of perks. Excessive gifts or lavish investor relation functions could prejudice a member's opinions about a sponsor. One type of benefit is the allocation of shares in oversubscribed IPOs to investment managers for their personal accounts. Every member shall avoid situations that might cause or be perceived to cause a loss of independence or objectivity in recommending investments or taking investment action.

Modest gifts and entertainment are acceptable. For example, gifts that do not exceed $100 may be accepted, as well as entertainment.

Gifts from clients can be distinguished from gifts given by other parties seeking to influence a member to the detriment of clients. Gifts from clients are deemed less likely to impair a member's independence than gifts from other parties seeking to influence the member's outlook. Members and candidates must disclose to their employers any such benefits from clients.

Example 1

You are an analyst for the banking industry. The head of investor relations for one of the larger firms in this industry offers to take you to dinner at a posh restaurant and discuss the upcoming quarterly earnings figures. He provides you with a new state-of-the-art titanium golf club as his limo drops you off at the end of the evening. He calls you the next day to ask if your report on his firm is progressing and indicates that there is a job waiting for you at the bank if you decide to leave your current position. First, the bank officer may have violated his fiduciary duty to his shareholders if he provided you with material nonpublic information. Regardless, you have been wined and dined and received a gift and a job offer from a senior officer of a firm you evaluate. Even if these inducements do not compromise your independence and objectivity, they may provide that perception. This violates the standard.

Example 2

An analyst follows the stock of company XYZ. He is invited by XYZ for a visit to the company. XYZ pays all travel expenses for him. In general, when allowing companies to pay for expenses, analysts should ensure that such arrangements do not impinge on their independence and objectivity. In this case, as long as the trip is strictly for business without lavish hospitality, such payment is acceptable.

Example 3

An analyst is asked by a firm's executives to issue favorable recommendations to secure the client's business. The analyst should conduct the review and make the recommendation based on his or her own independent and objective view. Note that members may experience pressure from their own firms to issue favorable reviews of certain companies. In a full-service investment house, the corporate finance department may be an underwriter for a company's securities and be loath to antagonize that company by publishing negative research reports.

Example 4

Steve, a portfolio manager, directs a large amount of his commission business to a London brokerage house. In appreciation for all the business, the London brokerage house gives Steve two tickets to travel anywhere in Europe. Steve fails to disclose receiving this package to his supervisor. Steve has violated the standard because accepting these perks, worth more than $100, may hinder his independence and objectivity.

Every member must avoid situations that may result in a potential conflict of interest

Every member shall avoid situations that might cause or be perceived to cause a loss of independence or objectivity in recommending investments or taking investment action.

Modest gifts and entertainment are acceptable. For example, gifts that do not exceed $100 may be accepted, as well as entertainment.

Gifts from clients can be distinguished from gifts given by other parties seeking to influence a member to the detriment of clients. Gifts from clients are deemed less likely to impair a member's independence than gifts from other parties seeking to influence the member's outlook. Members and candidates must disclose to their employers any such benefits from clients.

Example 1

You are an analyst for the banking industry. The head of investor relations for one of the larger firms in this industry offers to take you to dinner at a posh restaurant and discuss the upcoming quarterly earnings figures. He provides you with a new state-of-the-art titanium golf club as his limo drops you off at the end of the evening. He calls you the next day to ask if your report on his firm is progressing and indicates that there is a job waiting for you at the bank if you decide to leave your current position. First, the bank officer may have violated his fiduciary duty to his shareholders if he provided you with material nonpublic information. Regardless, you have been wined and dined and received a gift and a job offer from a senior officer of a firm you evaluate. Even if these inducements do not compromise your independence and objectivity, they may provide that perception. This violates the standard.

Example 2

An analyst follows the stock of company XYZ. He is invited by XYZ for a visit to the company. XYZ pays all travel expenses for him. In general, when allowing companies to pay for expenses, analysts should ensure that such arrangements do not impinge on their independence and objectivity. In this case, as long as the trip is strictly for business without lavish hospitality, such payment is acceptable.

Example 3

An analyst is asked by a firm's executives to issue favorable recommendations to secure the client's business. The analyst should conduct the review and make the recommendation based on his or her own independent and objective view. Note that members may experience pressure from their own firms to issue favorable reviews of certain companies. In a full-service investment house, the corporate finance department may be an underwriter for a company's securities and be loath to antagonize that company by publishing negative research reports.

Example 4

Steve, a portfolio manager, directs a large amount of his commission business to a London brokerage house. In appreciation for all the business, the London brokerage house gives Steve two tickets to travel anywhere in Europe. Steve fails to disclose receiving this package to his supervisor. Steve has violated the standard because accepting these perks, worth more than $100, may hinder his independence and objectivity.

Procedures for compliance

Members should follow certain practices and should encourage their firms to establish certain procedures to avoid violations of this standard.

• Protect integrity of opinions. Members and their firms should establish policies stating that every research report on issuers by a corporate client reflects the unbiased opinion of the analyst. Firms should also design compensation systems that protect the integrity of the investment decision process by maintaining the independence and objectivity of analysts.

• Create a restricted list. If the senior managers at a member's firm are unwilling to permit dissemination of adverse opinions about a corporate client, the firm should remove the controversial company from the research universe and put it on a restricted list so that the firm disseminates only factual information about the company.

• Restrict special cost arrangements. When attending meetings at an issuer's headquarters, a member should pay for commercial transportation and hotel charges. No corporate issuer should reimburse a member for transportation. Members should encourage issuers to limit the use of corporate aircraft to situations in which commercial transportation is not available or in which efficient movement could not otherwise be arranged. Members should take particular care that when frequent meetings are held between an individual issuer and an individual member the issuer is not always the host of the member.

• Limit gifts. Members should limit the acceptance of gratuities and/or gifts to token items. The standard does not preclude customary, ordinary, business-related entertainment so long as its purpose is not to influence or reward members.

• Review procedures. Members should implement (or encourage their firms to implement) effective supervisory and review procedures to ensure that analysts and portfolio managers comply with policies relating to their personal investment activities.

A misrepresentation is any untrue statement of a fact or any statement that is otherwise false or misleading.

Members and candidates shall not make or imply, orally or in writing, any assurances or guarantees regarding any investment except to communicate accurate information regarding the terms of the investment instrument and the issuer's obligations under the instrument. It prohibits statements or assumptions that an investment is "guaranteed," or that superior returns can be expected based on the member's past success.

This standard applies to oral representations, advertising, electronic communications (including web pages and emails) and written materials (whether publicly disseminated or not).

Note: This standard does not rule out correct statements that some investments are actually guaranteed in some way with guaranteed returns. Examples of these types of investments would be insurance contracts or short-term treasury securities.

This standard also prohibits plagiarism in the preparation of material for distribution to employers, associates, clients, prospects or the general public. Plagiarism involves copying or using substantially the same materials as those prepared by others without acknowledging the source of that material. The only exception is copying factual information, as published by several recognized financial institutions, as well as statistical information.

• Members and candidates should always attribute quotations, projections, data, model/product ideas, and methodologies to their sources and/or authors.
• This standard applies to written materials, oral communications, visits with clients, use of audio/video media, and electronic data transfer.
• Members and candidates can use recognized sources (S&P, Moody's) of factual information (information that is already in the public realm) without acknowledgement.
• Situations to which this Standard applies also depend on whom the member is representing. Members are not required to attribute ideas, methodologies, etc. developed by people within their firms when speaking with clients and prospects.
• Members and candidates should keep copies of materials used in preparing research reports.

In ethical terms, a member or candidate indulging in plagiarism is not conducting himself or herself with integrity. By plagiarizing, he or she is not only stealing the ideas of others, but also exposing himself or herself to violations of other standards by making recommendations that may not have a reasonable basis and may not avoid material misrepresentations.

Procedures for compliance

Members can prevent unintentional misrepresentations of the qualifications of services the member or the member's firm is capable of performing if each member understands the limit of the individual's or firm's capabilities and the need to be accurate and complete in presentations.

Firms can provide guidance for employees who make written or oral presentations to clients or potential clients by providing a written list of the firm's available services and a description of the firm's qualification, and compensations that are both accurate and suitable for client or customer presentations. Firms can also help prevent misrepresentation by specifically designating which employees are authorized to speak on behalf of the firm. Whether or not the firm provides guidance, members should make certain that they understand the services the firm can perform and its qualifications.

In addition, members should prepare a resume of their own qualifications and a list of services they are capable of performing to use in accurate presentations to clients. Members should use written resumes and job descriptions of firm services when making presentations to clients or prospective clients to help each member focus on the firm's and the member's own strengths and limitations. Firms can aid member compliance by periodically reviewing employee correspondence and documents that contain representations of individual or firm qualifications.

PROCEDURES OF COMPLIANCE

To avoid plagiarism, members and candidates should take the following steps:

• Maintain copies of all information used to generate a report.
• Attribute quotations other than recognized financial and statistical reporting services.
• Attribute summaries to the relevant author.

A member or candidate is in violation if he or she:

• Uses excerpts from reports done by others without acknowledgement.
• Cites quotes attributable to "leading analysts" and "investment experts" without specific reference.
• Uses charts and graphs without stating sources.
• Copies computer spreadsheets without obtaining the permission of the owner(s).
• Presents a firm's own research in an expert witness situation without attributing the research to its specific source.
• Presents a firm's own research to clients, prospects and the general public: NOT a violation as the member does not need to attribute the source specifically in this case.