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.
Conflicts of interests VI.A Disclosure (G) - full&fair disclosure of all matters that --may impair your indep/objectivity, or interfer with your duties. - disclose to clients - disclose to employers(own stocks analyzed, board participation) - may need written permission. ® - compensation arrangement (already covered) - in plain language VI.B priority of transaction (G) - client(cap mkt) > employer > analyst - you are a “beneficial owner” if you have a direct/indirect personal interest. - family member account shall be treated equally if it’s a client account. ® - limit in IPO - restrict purchase of sec thru private placement - blackout/restricted periods (don’t make restricted list public) - establish reporting proc & pre-clearance requirement(?) - disclose policies on personal investing to clients, upon request VI.C Refereral fees (G) - disclose to employer, clients received by (or paid to) you - allows clients/employers to eval full cost of services & any potential biases - disclosed prior to entering into any formal agreement(all types of considerations) VII.A conduct - integrity & reputation (G) - cheating - improper use VII.B reference to CFA xx (G) - complete PCS annually, pay membership duely/yr (inactive membership) ® - make sure employer is ware of proper reference.
Standard I (B) Independence and Objectivity With regards to travel: it says its ok for corporate issuers (i.e., subject company of your report) are allowed to pay for your travel if it is a situation in which commercial transportation is not efficient. What constitutes efficient? Where’s the line? Obviously there isn’t a hard and fast rule dictiating what efficient travel is, but what’s a rule of thumb? How is this being portrayed in examples?
in an example, you are going to a hard to get to mine that doesnt have an airport nearby… Allowing the company to pay for your transportation is then acceptable
Easy Ethics Points: These are things like how long to keep records, quite periods, etc… essentially things that can only be interpreted as compliance or non-compliance. No grey areas. Example: Research and Objectivity Standards - Quiet Periods for IPOs = 30 days Quiet Periods for seondary offerings = 10 days Analyst should not trade on the securities 30 days before and not until 5 days after his report/reccomendation is issued Any others Ya’ll want to throw out there?
can agency trades be used to benefit another client?
can agency trades be used to benefit another client?
I belive so, as long as the client who generated the brokerage that paid for the second clients benefits recieves the same treament (meaning that at some point another clients brokerage will pay for his reserach). If its done like that, everything is a wash and essentially they’re all paying for their own portion of the research. However, principle trades that fall under certain legal restrictions can only go to pay for the client who generated it’s research.