Ethics & Investment Professionalism Flashcards
(40 cards)
Ethical Behaviour is important because?
Trust in public financial markets, trust in investment professionals, trust in all stakeholders
Unethical behaviour results from - 1) a persons environment 2) a persons attitude / personality ?
Academics say environment - the reason why we have corporate governance
6 elements of code of ethics - try rhyme off the headlines?
1) Act with integrity, competence, diligence, respect to every stakeholder/capital market participant
2) Place client interest/investment profession above self interest
3) Care and independent judgement when providing investment analysis & recommendations
4) Encourage ethical practice
5) Promote financial market integrity of global financial market for the benefit of society
6) Maintain & improve professional competence of others
What is Standard 1?
Professionalism
What are the component parts of professionalism?
A) Knowledge of law
B) Independence & Objectivity
C) Misrepresentation
D) Misconduct
Explain the knowledge of the law standard (within 1.professionalism)?
- In event of a conflict always apply more strict law.
- have appropriate knowledge of reguulatory requirements
- Report breaches/unethical behaviour to your line manager/compliance dept.
- Dissociate from behaviour inc. resigning where possible
Explain independence & objectivity standard (within 1.professionalism)?
Don’t accept gifts which compromise independence or objectivity e.g., gifts, trips, avoid issuer always hosting, / pay for own trips.
Explain misrepresentation standard (within 1.professionalism)?
Do not knowingly make misrepresentation to investments, analysis, recommendations, activities.
i) own or firm qualifications
ii) services provided
iii) Performance record
iv) Guarantee of returns
v) Plagiarism
Instead keep records of sources, cite sources of stats etc.
Explain misconduct standard within (1. Professionalism)?
Don’t engage in professional conduct including dishonesty, fraud, deceit. This reflects poorly on professional rep, integrity and competence. REFERS ONLY TO CONDUCT WHEN WORKING - DURING BUSINESS HOURS. Don’t drink or fiddle expense accounts.
What is Standard 2?
Integrity of Capital Markets
What are the component part of Standard 2, Integrity of Capital Markets?
i) Material Non-Public Info
ii) Market Manipulation
Explain Material Non-public info standard within (2. Integrity of capital markets)
1) Material - price sensitive info - reasonable investors would like to know
2) Non-public - has not been disseminated publicly - info you’re not allowed to have/unless expressly given but can’t act upon. Even by accident.
3) Safeguard - Most investment firms set up info barriers to prevent issues.
You should not act or cause others to act on Material non-public info. Mosaic theory is acceptable, using public info and non-material non-public info, collating them to predict future events.
With mosaic theory, between public/material info, how do you draw the line of what’s acceptable/not acceptable.
You can trade on public/non-public information so long as it’s non-material. You can only trade on material information that is widely known and absorbed by the market.
Explain market manipulation within (2. Integrity of capital markets)
Do not distort prices/artificially inflate them with intention of misleading market participants.
- Transactions which distort prices/volumes.
- Dominant position to manipulate price
- Disseminate false info
What is Standard 3?
Duties to Clients
What are the component parts of Standard 3?
i) Loyalty, Prudence & Care
ii) Fair dealing
iii) Suitability
iv) Performance presentation
v) Preservation of confidentiality
Explain Loyalty Prudence and Care (Standard 3)
- Don’t use dealing commission to purchase free research.
- Managers should 1) Get best price for trades 2) Ensure dealing commission to client benefit 3) Vote on proxy issues
Explain Fair Dealing (standard 3)
Act for clients interest before employers or self interest, don’t favour one client over another when disseminating info, discretionary/non-discretionary/execution only clients should be treated the same.
Explain Suitability? (Standard 3)
Act for benefit of clients before your employers or your own interest
- Enquire into a clients experience, risk return, financial commitments
- When managing a portfolio, make decisions consistent with objectives and constraints of the portfolio
Explain Performance Presentation (Standard 3)
Ensure when communicating investment performance, its fair, accurate and complete. Voluntary compliance to GIPS, Global Investment Performance Standards.
Explain preservation of confidentiality (Standard 3)
Keep client (current/potential/former) info private.
- Except - Info contains illegal activity, Disclosure required by law, client permits it
What is Standard 4?
Duties to Employers
What are the component parts of standard 4? Duties to employers
A) Loyalty
B) Additional compensation arrangements
C) Responsibilities of supervisors
Explain Loyalty (Standard 4)
Don’t divulge confidential info.
Deprive employer of your ability
Independent practice - no rule to say no but u must get employer sign off
Leaving employer for private practice? Allowed to prepare but must act in client and employer interest until then
