I.A professionalism - most strict law/rule applys - 1st notify supervisor or compliance dept - may confront wrongdoer directly - dissociate (when resign?) - inaction = participation - no req to report to gov authorities ® - keep informed, revew regularly law/rule - encourage firm to adopt CoE - written procedure
I.B indep and objective (G) - no bow to investment banking. - flat-fee based issuer-paid research ® - restricted list - no IPO shares. - no way: – port. mgr accept gifts from brokerage firm – report paid bonus based on conlusion - disclosed&permission required(written): – gift contingent on future perf from client – any likely conflict with emp - disclsoed only – gift for prev perf. – flat-fee report - OK – token, modest gift, no strict $ – no influence (bonus from a part-time job)
I.C misrepresentation (G) - oral, written(email) form - on qualification, service, perf, character, … - guranteed return - plagiarism ® - written list of service to prevent plagiarism - quote the source except the recognized service like bloomberg, reuters. I.D misconduct (G) - professional related. ® - adopt a CoE - conduct a bg check for new hires.
This’s all for today.
More… more!! Thanks deriv108…
Compensation can’t be directly related to an investment banking IPO that you have worked on as a part of the team. But if your compensation is based on the overall profitability of the firm, that is okay. If you’re a mining analyst and the company pays for your charter flights between mining sites and accommodations at Bob’s Motel, that is permissible. As long as it is not lavish and won’t affect your independence and objectivity, it is okay. For some reason, the CFAI text likes to use mining analysts in their examples. You cannot plagiarize, always cite your sources. Unless the data comes from a well known financial or statistical reporting service.
CFAdreams Wrote: ------------------------------------------------------- > remember you can inorporate your own business that > competes with your firm in your free time, even if > your company says you cant… this does not violate > duty to employer. Unless you signed a non-compete > contract > > Murder, frowned upon, but allowed. working > part-time in a restaraunt and getting stock tips > frokm brokers who come in (this has happened to > all of us) - not allowed CFAdreams, can you specify a source for these? The first one boggles my mind. I would think that competing with your employer violates the loyalty standard - but if it’s in your free time and you do not deprive them of your abilities during your work time I suppose it makes sense. The second one confuses me as well.
My typing is slow, just like my reading. Here is II. II.A material non-public info. - material – affect the price – investor’ll take action on it. - non-public – conference call – non-public till it’s widely known (like publicly appear on CNBC?) -material&public – widely read newspapers, news site -non-metrial&non-public – mosaic(two CEOs got lunch) ® - firewall - restrict list for employee/proprietary trade II.B mkt manipulation - distort price/volume - rumor, distribute false/misleading info (negative&positive)
first one was off a mock, the murder thing i made up, not really addressed in the standards The stock tips from your job as a waiter is pretty much any cfai question ever written. You overhear 2 brokers talking, you cant trade on that info… no reasonable basis or its material info…
Can we clarify the last point What if you are a waiter and you overhear 2 people talking and one says Company X is going to go up 50% and you buy company X. I would say that is not inside information - those 2 people could be brokers with material inside information or they could be 2 clowns who read an article in a newspaper. It would be similar to if your doctor told you that he thought a stock was a great buy and you bought it… he has no knowledge… If you are trading your own account you don’t need a reasonable basis…?
I would think they’d need to tell you that you recognize them at insiders.
the question usually goes you notice 2 star analysts from JPM walk in… or whatever… and you overhear them saying they are going to issue a sell recommendation on Thursday… then you run ahead and trade… you cant because this is material nonpublic and you dont have a reasonable basis
Who are the clients of a buy-side firm, and who are the clients of a sell-side firm? In a firm like Goldman Sachs, are their analysts sell-side analysts, buy-side analysts, or both?
they can be both from goldman… sell-side issues reports out to the general public and their clients… buy-side analysts buy for their company’s holdings… this is my understanding
III.A Client - LPC (G) - client first > employer > - reasonable care, prident judgement - prudent investor rule(5) - vote proxies - soft dollar benefits client ® - follow rules/law (knowledge of law) - establish client invest obj - fair dealing/disclosure III.B fair dealing (G) - no discrimination - fair (not equally) - diff level services OK, they shall be available to all clients. (disclose here, no harm to other clients) - recommendation (fair chane to act; no front running; advise clients if unware of change) - act (treat clients fairly; disclose written allocation procedure) ® - limit # of people aware of upcoming changes - shorten time frame - sim. dissemination - maintain a list of client/holdings - disclose III.C suitability (G) - reasonable inquiry (outset & IPS) - update info regularly - ensure “SUITABLE TO CLIENT SITUATION & CONSISTENT WITH WRITTEN OBJECTIVES” before recomm or action. - suitable in portfolio context - IPS update at least annually ® - constraints (LTLTU) III.D perf presentation (G) - fair, accurate and complete (FAC) - perf (past and future) ® - GIPS is optional - audience sophistication - weighted composite - terminated acct III.E preservation of confidentiality (G) - preserve unless 1) illegal activities 2) law 3) client’s permission - extended to former clients - exception: PCP (forgot what it’s) - examples: money manager gives your phone# to foundation or church for donation.
IV.A Loyalty to employer (G) - indep/comsulting practice: --disclose/approved by employer(all parties?) on what/how long/compensation - leaving employer: not take materials, but OK with knowledge/skill. - whistleblowing: for client/CM, not for personal gain. IV.B additional compensation arrangement (G) - written permission from ALL parties(email OK) - compensation & all kinds of benefits ® - immediate report (nature, $, duration) IV.C Resp of supervisor (G) - detect/prevent violation (reasonable effort) - take steps ® - adequate compliance proc: – clear; desinated officer; permitted conduct; – distribute proc/update – reviewing employee action – respond promptly – thorough investigation – appropriate limitation till complete
Question…is it assumed that when trading in your own account you do not need a reasonable basis. This is my understanding, but just want to make sure others are on the same page. The idea that you need to have a reasonable basis for recommendation purely pertains to when buying/selling for clients. So in the situation that you overhear two analysts talking about a report that they issued that morning with a buy rating on a stock and you go an buy it without looking into the stock at all, this is NOT a violation. Just wanted to make sure I am right in my thinking here. Thoughts?
Is the analyst’ rating change (from buy to sell before public release) material nonpublic info? what is the right thing to do to avoid violation?
Agreed. For trading in your own account, the priority of transaction, material non-pub info and etc are relevant. The reasonable care is for client; the reasonable basis is for investment analysis, recommendation and action.
Investment analysis, recomm, actions V.A Diligence & reasonable basis - diligent, indep, reasonable, supported by research&analysis - using 2nd & 3rd party research (timeliness & assumption) - group research & decision making (don’t have to agree) - procedure, measureable criteria V.B communication - disclose the basic format/genral principles - dsclose change - reasonable judgement in identifying factors - fact vs. opinion - include basic charateristics of security - suitability (portfolio context) - all communication covered - inclusion/exclusion of info (forgot what this is about) - maintain record V.C record retention (G) - to support research - firm’s property ® - 7 years’ data - it’s usually firm’s responsibility - individuals retain doc for investment related communication.