CFA Standards of practice - Conflicts of interests

Question 1

Explain how CFA Members and Candidates should deal with “priority of transactions”

Answer 1

Investment transactions for clients and employers must have priority over investment transactions in which MaC is the beneficial owner

Question 2

Avoiding potential conflicts, nothing is inherently unethical about individual managers making money from personal investments as long as : (3 points)

Answer 2

1. Client is not disadvantaged by the trade
2. The IP does not benefit personally from trades
3. The IP complies with applicable regulatory requirements

Question 3

Give 6 guidances for “Disclosure of of conflicts”

Answer 3

1. Best practice is to avoid actual conflicts when possible
2. Disclosure of conflicts to employers : Many conflicts could be explicitly prohibited by employer
3. Disclosure to clients : the most obvious conflict of interest which should always be disclosed
4. Cross-department conflicts
5. Conflicts with Stock-ownership : the easiest way to prevent a conflict is to prohibit MaC from owning such securities
6. Conflicts as a director

Question 4

Conflicts as a director: service poses 3 basis conflicts of interests

Answer 4

1. Between the duties owed to clients and those owned to shareholders
2. Directors ma receive the securities of the firm as compensation which could raise questions about trading actions
3. Board service creates the opportunity to receive material nonpublic information

Question 5

Explain how CFA Members and Candidates should deal with “Disclosure conflicts”

Answer 5

MaC 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 and employers. MaC must ensure that such disclosures are prominent, are delivered in plain language and communicate the relevant information effectively

Question 6

Give 3 other guidances for “Priority of transactions”

Answer 6

1. Personal trading secondary to trading or clients. Some clients require MaC to have aligned interests
2. Standards for nonpublic information covers the activities of MaC who have knowledge of pending transactions that may be made on behalf of their clients
3. Impact on all accounts with beneficial ownership : MaC may undertake transactions only after their clients and employers have ad adquate opportunity

Question 7

Talking about priority of transactions, firms should adopt certain basic procedure on : (6 points)

Answer 7

1. limited participation in equity IPOs
2. Personal purchases in IPOs may have the appearance that investment opportunity is being bestowed
3. Restrictions on private placements
4. Establish blackout/restricted periods so that managers cannot take advantage of their knowledge
5. Reporting requirements, disclosure of personal holdings, confirmations of trades, preclearance procedure
6. Disclosure of policies, MaC should fully disclose to investors their firm’s policies

Question 8

Explain how CFA Members and Candidates should deal with “Referral fees”

Answer 8

MaC must disclose to their employers, clients and future clients as appropriate, any compensation, consideration or benefit received from or paid to others for the recommendation of product or services