Ethics in Finance

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Disclaimer:
All characters appearing in this presentation are fictitious. Any resemblance to real persons, living or dead, is purely coincidental.

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THE STANDARNDS OF PROFESSIONAL CONDUCT

I. Professionalism II. Integrity of Capital Markets III. Duties to Clients IV. Duties to Employers

V. Investment Analysis, Recommendations, and Actions

VI. Conflicts of Interest VII. Responsibilities as a CFA Institute Member or CFA Candidate

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Standard I: Professionalism
A. Knowledge of the law B. Independence and Objectivity C. Misrepresentation D. Misconduct
Example:
Ullas Jhunjhunwala is an investment
analyst at Pali Sleeping Trust. During a meeting with a potential client, Ullas states that, "You can be sure our investments will always outperform Treasury Bonds because of our fine research staff members,

like Jinesh."

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Standard II: Integrity of Capital Markets

A. Material Nonpublic Information
Example:

ENRON

B. Market Manipulation

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Standard III : Duties to Clients

A. Loyalty, Prudence, and Care B. Fair Dealing
Example:
Dutta, an investment analyst, emails
a newly released research report to all her clients, and then calls a few large clients like Niloy to discuss the recommendation and follow up with a request for an order.

C. Suitability
D. Performance Presentation E. Preservation of Confidentiality

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Standard IV : Duties to Employers

A. Loyalty B. Additional Compensation Arrangements C. Responsibilities of Supervisors
Example:
Joedi Atinado, a portfolio manager, manages pension accounts for Thomas Assets Inc. but has been frustrated with the work environment and has been offered a position in Fiduciary Management. Before resigning from the trust Joedi also persuades several prospective clients to sign agreements with Fiduciary Management. Joedi has made presentations to these clients on behalf of Thomas Assets Inc.

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Standard V : Investment Analysis, Recommendations, and Actions

A. Diligence and Reasonable Basis
Example:
Sunil, Equity Analyst at Lehman,
reads news in WSJ, about Eastern Petroleums discovery of estimated 1000m3 of gas in Philippines. Sunil concludes his research report as follows: Based on the fact that company has 1000m3 of gas to

B. Communication with Clients

and Prospective Clients C. Record Retention

explore, I recommend strong BUY.

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Standard VI : Conflicts of Interest

A. Disclosure of Conflicts B. Priority of Transactions C. Referral Fees
Example:
Tony, a financial
a on of

analyst

is

preparing recommendation beneficial

purchase Crissa Crissa

Corporation. He has a material ownership Corporation through a family trust, and his wife, Tina, owns 2,000 shares

of Crissa Corporation.