on 06-Apr-2016 (Wed)

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.

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.

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.

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

You 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.

People may try to influence by offering investment managers stuff. Gifts and lavish relations 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.

Avoid situations that might cause or BE PERCEIVED to cause a loss of independence or objectivity

Gifts that do not exceed $100 are ok as well as entertainment.

Gifts from clients are different than gifts given by other parties to influence a member to the detriment of clients.

Gifts from clients are less likely to impair a member's independence although you must disclose to your employers any gift 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 gives you with a titanium golf club as his limo drops you off at the end. 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 yours.

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 XYZ. He is invited for a visit to the company. XYZ pays all travel expenses.
• When allowing companies to pay for expenses, analysts should ensure that such arrangements do not impinge on their independence and objectivity.
  
  As long as the trip is for business without lavish hospitality, such payment is acceptable.

Example 3

You are asked by a firm's executives to issue favorable recommendations to secure the client's business. you should review and make the recommendation based on your own independent and objective view.

You may experience pressure from your own firm 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 not want 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 management at a member's firm dont want to give adverse opinions about a client, they should remove the company from the research universe and put it on a restricted list so that the firm reports only factual information about the company.

• Restrict special cost arrangements. When attending meetings at an issuer's headquarters, a member should pay for transportation and hotel charges. Members should encourage issuers to limit the use of corporate aircraft to situations in which commercial transportation is not available. 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 gifts to token items. The standard does not prohibit ordinary, business-related entertainment if the purpose is not to influence or reward members.

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

C. Misrepresentation.

You must not knowingly make any misrepresentations relating to investment analysis, recommendations or other professional activities.

Do 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.

Misrepresentation = 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.

You shall NOT make or IMPLY any assurances or GUARANTEES regarding any investment except to communicate ACCURATE information of the terms of the instrument and the issuer's obligations.


It prohibits statements or assumptions that an investment is "guaranteed," or that superior returns can be expected based on past success.

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

This standard does not rule out correct statements that some investments have in some way with guaranteed returns like short term-treasury securities.

This standard also prohibits plagiarism in the preparation of material.

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.

• Always attribute quotations, projections, data, model/product ideas, and methodologies to their sources.
  
• This standard applies to written materials, oral, visits with clients, use of audio/video, and electronic data transfer.
  
• You 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.
  
• You 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

Prevent unintentional misrepresentations of the qualifications of services by understanding 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 presentations by providing a list of the firm's services and a description of the qualification that are accurate and suitable for client presentations.

Firms can prevent misrepresentation by designating which employees speak on behalf of the firm.

Prepare a resume of your qualifications and a list of services you are capable of performing to use in presentations.

You should use written resumes and job descriptions of firm services when making presentations to clients to help each member focus on strengths and limitations.

Firms can aid compliance by periodically reviewing employee correspondence and documents that contain representations of qualifications.

To avoid plagiarism, take the following steps:

• Keep 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.

Example 1

Your prospective client is unsure whether to hire you. You mention that investment decisions are made by a team of five professionals, each a CFA charterholder, and that this is an above-average level of expertise for a firm of this size and should lead to superior investment performance. However, even if individuals holding CFA charters make decisions, you cannot infer that this will lead to superior performance. If you can substantiate the superior level of expertise among managers in your firm, then that part of your statement is okay

Example 2

An analyst calls himself a "portfolio management specialist." In fact, the analyst is just a trainee. The analyst violates the standard for misrepresenting his or her qualifications.

Example 3

A firm advertises that investors can increase their returns by investing in money market funds rather than municipal funds. The firm doesn't mention that this statement is not true for investors in the highest tax bracket. The firm, therefore, violates the standard because the advertisement predicts performance for all investors without distinguishing the impact on investors in the highest tax bracket.

Example 4

Kevin is the president of Shapiro Inc., an investment relations company. Kevin contracts with six publicly traded companies to electronically promote their stock. Kevin posts a profile and a strong buy recommendation for each company on Market Strategy's Internet site. Kevin also sends unsolicited email to 250,000 potential investors indicating that the stock is guaranteed to increase in value. The six companies compensate Kevin for the promotion with cash and stock. Neither the Internet site nor the emails disclose the compensation arrangement between Kevin and the six companies. Kevin has violated this standard because the Internet site and emails are misleading to potential investors. Kevin should not have guaranteed that the securities would increase in value. Kevin has also violated Standard VI. C (Referral Fees) by not disclosing the existence of an arrangement with the six companies through which he receives compensation in exchange for his services. Kevin may have also violated Standard V. A (Diligence and Reasonable Basis) if he failed to perform a diligent and thorough investigation appropriate to the circumstances of his investment recommendations.

Example 5

An analyst is working late to complete an evaluation of a biotechnology firm. She finds another analyst's report which provides detail supporting her general opinion of the firm. She includes these details and slightly edits the conclusion of the report to include in her own. The analyst has violated this standard by not recognizing the source of her analysis. If she provides attribution to the original analyst, she should be okay.

Example 6

An analyst includes information regarding historical interest rates collected from a Federal Reserve website. He uses this information as part of a report without attribution. If the source is considered well-recognized and the information is purely factual, this is not a violation of the standard.

Example 7

Your firm develops a product to which you have not contributed. If you use it, as a representative of the firm, you need not say that you had nothing to do with its development. However, if you use it in your own private capacity (e.g., to give expert advice as a witness) then you need to attribute it to the firm's specific staff and not to yourself.