CFA Level 2
6 requirements of CFA code of ethics? - ANS •Act with integrity, competence, diligence, and
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 and viability of the global capital markets for the ultimate benefit of
society.
•Maintain and improve their professional competence and strive to maintain and improve the
competence of other investment professionals.
ETHICS: 1. Professionalism (a) Knowledge of the law
CFA Rule?
Guidance keys? (2)
Recommended procedures? (4) - ANS understand and comply with all applicable laws, rules,
and regulations (including the CFA Institute Code of Ethics and Standards of Professional
Conduct). In the event of conflict, comply with the more strict law, rule, or regulation. You must
not knowingly participate or assist in and must dissociate from any violation of such laws, rules,
or regulations.
Guidance 1. Do not violate Code or Standards even if the activity is otherwise legal. Always
adhere to the most strict rules and requirements 2. disassociate even if it involves leaving an
employer (an extreme case).While a member may confront the involved individual first, he must
approach his supervisor or compliance department. Inaction with continued association may be
construed as knowing participation.
Best practice 1.Members should seek advice of counsel or their compliance department when in
doubt. 2.Members should document any violations when they disassociate themselves from
prohibited activity and encourage their employers to bring an end to such activity.3. There is no
requirement under the Standards to report violations to governmental authorities, but this may
,be advisable in some circumstances and required by law in others.4. Members are strongly
encouraged to report other members' violations of the Code and Standards.
**fiduciary duties is now covered under this standard
**these are 4 of 10 best practice recommendations
1. Professionalism (b) Independence and objectivity.
Rule?
Guidance? (6)
Recommended procedures for compliance? (4) - ANS 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.
(1) do not accept gifts, except modest gifts are ok. -- distinguish bw gifts from clients and gifts
from parties trying to influence decisions -- in either case disclose gifts to employer (2) allocation
of shares of oversubscribed IPOs in personal account is not permitted (3) must be good
firewalls bw investment bankers and analysts, they only be working together if conflicts are
managed and disclosed. (4) travel is a complicated one, if the travel is not lavish and it is
practical than it may be okay for the analyst to allow for the subject company to pay for
(non-lavish travel may be in the form of chartered flights) best practice is for analysts to pay for
their own travel when attending info about firm being analyzed but may not be a violation if it is
practical and doesn't impair judgment (5) issuer-paid research is fraught with potential conflicts.
Analysts' compensation for preparing such research should be limited, and the preference is for
a flat fee, without regard to conclusions or the report's recommendations. (6) Members and
candidates must exercise independence and objectivity when they select investment managers.
They should not accept gifts or other compensation that could be seen as influencing their hiring
decisions, nor should they offer compensation when seeking to be hired as investment
managers. The responsibility to maintain independence and objectivity applies to all a member
or candidate's hiring and firing decisions, not just those that invol
1. Professionalism (c) Misrepresentation
Rule?
Guidance? (3) - ANS Members and Candidates must not knowingly make any
misrepresentations relating to investment analysis, recommendations, actions, or other
professional activities.
,(1) do not lie or give false impressions (2) this includes guaranteeing investment performance
and plagiarism (3) models and analysis developed by others at the firm are property of the firm
and can be used without citing, however a report written by another analyst cannot be released
as another analyst's work -- Information from recognized financial and statistical reporting
services need not be cited.
1. Professionalism (d) Misconduct
Rule?
violation for civil disobedience relating to personal belief such as political activism? - ANS
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.
usually not a violation
2. Integrity of capital mkts (a) Material Non-Public Information
Guidance?
violation for failing to prevent transfer of material nonpublic information to others at firm - such
as others overhearing conference call? - ANS 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.
(1) Guidance—Mosaic Theory - There is no violation when a perceptive analyst reaches an
investment conclusion about a corporate action or event through an analysis of public
information together with items of nonmaterial nonpublic information. (2) Guidance—Social
Media-
When gathering information from internet or social media sources, members and candidates
need to be aware that not all of it is considered public information. Members and candidates
should confirm that any material information they receive from these sources is also available
from public sources, such as company press releases or regulatory filings.
Yes - violation for failing to prevent others from hearing the information
2. Integrity of capital mkts (b) Market Manipulation
Rule?
Guidance? - ANS Members and Candidates must not engage in practices that distort prices or
artificially inflate trading volume with the intent to mislead market participants.
, (1) This Standard applies to transactions that deceive the market by distorting the price-setting
mechanism of financial instruments or by securing a controlling position to manipulate the price
of a related derivative and/or the asset itself. (2) Spreading false rumors is also prohibited.
3 Duties to Clients (a) Loyalty prudence and care
Rule?
Guidance? (5) - ANS -duty of loyalty to their clients and must act with reasonable care and
exercise prudent judgment. and place their clients' interests before their employer's or their own
interests.
(1) Make investment decisions in the context of the total portfolio. (2) Inform clients of any
limitations in an advisory relationship (e.g., an advisor who may only recommend her own firm's
products). (3) Vote proxies in an informed and responsible manner. Due to cost benefit
considerations, it may not be necessary to vote all proxies.
(4) Client brokerage, or "soft dollars" or "soft commissions" must be used to benefit the client.
(5)The "client" may be the investing public as a whole rather than a specific entity or person.
3 Duties to Client (b) Fair Dealings
Rule?
Guidance? (3)
Recommended procedures? (4) - ANS 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.
(1) no discrimination against any clients when disseminating information to clients -fair does not
mean equal-different levels of service are ok (2) different levels of service doesn't mean you can
disadvantage the lower tier clients -- you can provide more hand holding to higher tier but you
cant get a new IPO and say only top tier clients get any of these shares (3) be sure to give all
clients fair chance to act upon every recommendation - just issued sell recommendation, client
calls you to buy before they see the recommendation make sure they know of the sell rating
before letting them buy
(1)develop written trade allocation procedures (2) limit number of people aware of
recommendatoin change before (3) shorten timeframe from decision to dissemination (4)
deviations from strict pro rate allocation of IPO is sometimes okay -- the system used should be
fair to all clients though like when there is a "minimum lot size"
III - Duties to Clients -(C) Suitability
6 requirements of CFA code of ethics? - ANS •Act with integrity, competence, diligence, and
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 and viability of the global capital markets for the ultimate benefit of
society.
•Maintain and improve their professional competence and strive to maintain and improve the
competence of other investment professionals.
ETHICS: 1. Professionalism (a) Knowledge of the law
CFA Rule?
Guidance keys? (2)
Recommended procedures? (4) - ANS understand and comply with all applicable laws, rules,
and regulations (including the CFA Institute Code of Ethics and Standards of Professional
Conduct). In the event of conflict, comply with the more strict law, rule, or regulation. You must
not knowingly participate or assist in and must dissociate from any violation of such laws, rules,
or regulations.
Guidance 1. Do not violate Code or Standards even if the activity is otherwise legal. Always
adhere to the most strict rules and requirements 2. disassociate even if it involves leaving an
employer (an extreme case).While a member may confront the involved individual first, he must
approach his supervisor or compliance department. Inaction with continued association may be
construed as knowing participation.
Best practice 1.Members should seek advice of counsel or their compliance department when in
doubt. 2.Members should document any violations when they disassociate themselves from
prohibited activity and encourage their employers to bring an end to such activity.3. There is no
requirement under the Standards to report violations to governmental authorities, but this may
,be advisable in some circumstances and required by law in others.4. Members are strongly
encouraged to report other members' violations of the Code and Standards.
**fiduciary duties is now covered under this standard
**these are 4 of 10 best practice recommendations
1. Professionalism (b) Independence and objectivity.
Rule?
Guidance? (6)
Recommended procedures for compliance? (4) - ANS 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.
(1) do not accept gifts, except modest gifts are ok. -- distinguish bw gifts from clients and gifts
from parties trying to influence decisions -- in either case disclose gifts to employer (2) allocation
of shares of oversubscribed IPOs in personal account is not permitted (3) must be good
firewalls bw investment bankers and analysts, they only be working together if conflicts are
managed and disclosed. (4) travel is a complicated one, if the travel is not lavish and it is
practical than it may be okay for the analyst to allow for the subject company to pay for
(non-lavish travel may be in the form of chartered flights) best practice is for analysts to pay for
their own travel when attending info about firm being analyzed but may not be a violation if it is
practical and doesn't impair judgment (5) issuer-paid research is fraught with potential conflicts.
Analysts' compensation for preparing such research should be limited, and the preference is for
a flat fee, without regard to conclusions or the report's recommendations. (6) Members and
candidates must exercise independence and objectivity when they select investment managers.
They should not accept gifts or other compensation that could be seen as influencing their hiring
decisions, nor should they offer compensation when seeking to be hired as investment
managers. The responsibility to maintain independence and objectivity applies to all a member
or candidate's hiring and firing decisions, not just those that invol
1. Professionalism (c) Misrepresentation
Rule?
Guidance? (3) - ANS Members and Candidates must not knowingly make any
misrepresentations relating to investment analysis, recommendations, actions, or other
professional activities.
,(1) do not lie or give false impressions (2) this includes guaranteeing investment performance
and plagiarism (3) models and analysis developed by others at the firm are property of the firm
and can be used without citing, however a report written by another analyst cannot be released
as another analyst's work -- Information from recognized financial and statistical reporting
services need not be cited.
1. Professionalism (d) Misconduct
Rule?
violation for civil disobedience relating to personal belief such as political activism? - ANS
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.
usually not a violation
2. Integrity of capital mkts (a) Material Non-Public Information
Guidance?
violation for failing to prevent transfer of material nonpublic information to others at firm - such
as others overhearing conference call? - ANS 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.
(1) Guidance—Mosaic Theory - There is no violation when a perceptive analyst reaches an
investment conclusion about a corporate action or event through an analysis of public
information together with items of nonmaterial nonpublic information. (2) Guidance—Social
Media-
When gathering information from internet or social media sources, members and candidates
need to be aware that not all of it is considered public information. Members and candidates
should confirm that any material information they receive from these sources is also available
from public sources, such as company press releases or regulatory filings.
Yes - violation for failing to prevent others from hearing the information
2. Integrity of capital mkts (b) Market Manipulation
Rule?
Guidance? - ANS Members and Candidates must not engage in practices that distort prices or
artificially inflate trading volume with the intent to mislead market participants.
, (1) This Standard applies to transactions that deceive the market by distorting the price-setting
mechanism of financial instruments or by securing a controlling position to manipulate the price
of a related derivative and/or the asset itself. (2) Spreading false rumors is also prohibited.
3 Duties to Clients (a) Loyalty prudence and care
Rule?
Guidance? (5) - ANS -duty of loyalty to their clients and must act with reasonable care and
exercise prudent judgment. and place their clients' interests before their employer's or their own
interests.
(1) Make investment decisions in the context of the total portfolio. (2) Inform clients of any
limitations in an advisory relationship (e.g., an advisor who may only recommend her own firm's
products). (3) Vote proxies in an informed and responsible manner. Due to cost benefit
considerations, it may not be necessary to vote all proxies.
(4) Client brokerage, or "soft dollars" or "soft commissions" must be used to benefit the client.
(5)The "client" may be the investing public as a whole rather than a specific entity or person.
3 Duties to Client (b) Fair Dealings
Rule?
Guidance? (3)
Recommended procedures? (4) - ANS 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.
(1) no discrimination against any clients when disseminating information to clients -fair does not
mean equal-different levels of service are ok (2) different levels of service doesn't mean you can
disadvantage the lower tier clients -- you can provide more hand holding to higher tier but you
cant get a new IPO and say only top tier clients get any of these shares (3) be sure to give all
clients fair chance to act upon every recommendation - just issued sell recommendation, client
calls you to buy before they see the recommendation make sure they know of the sell rating
before letting them buy
(1)develop written trade allocation procedures (2) limit number of people aware of
recommendatoin change before (3) shorten timeframe from decision to dissemination (4)
deviations from strict pro rate allocation of IPO is sometimes okay -- the system used should be
fair to all clients though like when there is a "minimum lot size"
III - Duties to Clients -(C) Suitability
