Tiêu đề 11.5 Ethics Application.pdf ✅

1. Zhang Li, CFA, is a portfolio manager who manages a mutual fund and a hedge fund for an investment company. Li conducts thorough due diligence of Coffee Cup Inc., which she believes will revolutionize the industry, and finds that the stock is suitable for both funds. Li places a limit order for 100,000 shares at $35 and instructs the broker to allocate 90% to the mutual fund and 10% to the hedge fund, based on the funds' sizes and investment objectives and given that neither fund requires a minimum allocation. On the same day, Coffee Cup announces it has received a new patent and the stock price quickly increases to $40 per share. Later, Li sees that her order has been only partially filled and she has received only 10,000 shares. Li decides that she would prefer the hedge fund have a full allocation, so she instructs the broker to allocate all 10,000 shares to the hedge fund and cancels the rest of the order. Does Li's conduct most likely comply with Standard III(B) Fair Dealing?  A. No, since she favored one client over another. B. Yes, since the hedge fund received its full allocation, but no more. C. Yes, since a pro rata allocation would have been too small for either client. Explanation "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." Standard III(B) Fair Dealing focuses on managers' responsibilities to treat all clients fairly and objectively, specifically in terms of information distribution and investment actions. According to the Standards, when a member or candidate is managing a fund, that fund is the client. In this scenario, Li violated Standard III(B) by changing the allocation to each fund after finding out that the stock price had risen. Since the order had been only partially filled, the shares should have been allocated on a pro rata basis as initially instructed. The mutual fund was at a disadvantage since it was also entitled to participate in the gain but Li's action prevented this participation. (Choice B) Allowing the hedge fund a full allocation and the full benefit of a fortuitous trade at the expense of another client (ie, the mutual fund) after hearing of the price gain is a violation of the Standard. (Choice C) Minimum allocation sizes are sometimes appropriate and even common (eg, initial public offerings, new corporate bond offerings). However, the key element in this scenario is that the portfolio manager knew the stock price had risen and deliberately favored one client (ie, hedge fund) over another client (ie, mutual fund). This is an especially sensitive issue if a fund charging higher fees (eg, hedge fund with incentive fees) is favored over a fund charging lower fees (eg, mutual fund). Things to remember: Standard III(B) Fair Dealing focuses on managers' responsibilities to treat all clients fairly and objectively, specifically in terms of information distribution and investment actions. In this scenario, Standard III(B) was violated by changing the trade allocation once the stock price had risen. Explain how the practices, policies, and conduct do or do not violate the CFA Institute Code of Ethics and Standards of Professional Conduct LOS Copyright © UWorld. Copyright CFA Institute. All rights reserved.
2. Wang Pei Han, CFA, is an independent investment consultant. Among her clients are the investment fund for Bright Life Insurance (BLI) and the personal investment account for the fund's manager, Li Jie. Wang is contacted by the CFA Institute Professional Conduct Program (PCP) regarding her own potentially unethical, but not illegal, activity. The PCP is requesting information about the fund and Li's investment account to support its investigation. Local law requires that information about illegal activity be disclosed to authorities but does not mandate any specific action otherwise. Given that BLI and Li are clients, to comply with Standard III(E) Preservation of Confidentiality, Wang's most appropriate action is to provide the PCP information about: A. only BLI's investment fund since Li is an individual investor.  B. both BLI's investment fund and Li's personal investment account. C. neither BLI's investment fund nor Li's personal investment account. Explanation "Members and Candidates must keep information about current, former, and prospective clients confidential unless: 1. The information concerns illegal activities on the part of the client or prospective client, 2. Disclosure is required by law, or 3. The client or prospective client permits disclosure of the information." Standard III(E) Preservation of Confidentiality instructs Members and Candidates to protect confidential information provided by clients, prospective clients, and former clients. This applies to both individual and institutional investors equally. Confidential information includes that which: is received while conducting the client's business or personal affairs arises or is relevant to the portion of the client's business that is subject to the relationship. In addition to the three conditions listed in the Standard, Members and Candidates are required, when permitted by applicable local laws, to provide the CFA Institute Professional Conduct Program (PCP) any client information requested during PCP investigations into themselves. Members and Candidates are also encouraged to cooperate in investigations of others by the PCP. Confidential information provided to the PCP does not violate the Standard. In this scenario, Wang Pei Han must first defer to local law, which does not mandate any specific action from her since there are no illegal actions to report. Therefore, the Standard requires Wang to disclose the information that the PCP is seeking regarding both clients (Choices A and C). Things to remember: Standard III(E) Preservation of Confidentiality instructs Members and Candidates to protect the information of individual and institutional investor clients. However, when applicable law allows, the Standard requires Members and Candidates to provide requested client information during Professional Conduct Program investigations. Evaluate practices, policies, and conduct relative to the CFA Institute Code of Ethics and Standards of Professional Conduct LOS Copyright © UWorld. Copyright CFA Institute. All rights reserved.
3. Fulvio Lombardi, CFA, a research analyst, recently left Primo Investment, where he had published research on Breve Latte Inc. (BLI). Lombardi joins Risultati Research and uses publicly available information and material from management's latest earnings release to create a new research report on BLI based on updated information. The public information includes material from Twitter posts and online blogs by BLI's chief executive officer and chief financial officer. Lombardi verifies the information in the social media sources when possible and feels comfortable including them in his analysis. Since these tweets and blogs are hosted on electronic servers and are easily accessible, Lombardi does not see the need to maintain them in his files, yet he keeps documentation of personal notes, articles, and other research documents. Lombardi publishes the report without obtaining permission from or citing his former employer. Which of Lombardi's actions are most likely in compliance with Standard V(C) Record Retention? A. Only his documentation of research sources  B. Only the publishing of the research report on BLI at Risultati C. Both his documentation of research sources and publishing of the report on BLI at Risultati Explanation "Members and Candidates must develop and maintain appropriate records to support their investment analyses, recommendations, actions, and other investment-related communications with clients and prospective clients." Typically, records are the property of the firm and must not be used outside that firm without written consent. However, the member or candidate may create new reports on companies covered during prior employment if the member or candidate obtains information from public sources or new research material (ie, not from memory). Thus, Lombardi's creation and publishing of the research report comply with the Standard. (Choices A and C) Although the Standard places primary responsibility on the firm for record retention compliance, members and candidates must keep records on their own to assist the firm. These records include retaining documentation of online media, including emails, text, Twitter, and blog posts (ie, new media items). Here, Lombardi's failure to document the Twitter and blog posts conflicts with the Standard. Things to remember: Standard V(C) Record Retention requires members and candidates to keep records (which are considered the property of the firm), including documentation of social media sources such as Twitter and blog posts, that support their investment-related communication with and actions on behalf of clients and prospective clients. Members or candidates that leave one firm for another may continue to cover the same companies at the new firm if the member or candidate creates new reports using information from public sources or new research material. Evaluate practices, policies, and conduct relative to the CFA Institute Code of Ethics and Standards of Professional Conduct LOS Copyright © UWorld. Copyright CFA Institute. All rights reserved.
4. Aditi Kumar is a Level II Candidate and a performance measurement and attribution analyst for an investment manager. On a quarterly basis, Kumar produces performance reports that include the firm's composites for each investment strategy. Raheem Khan, CFA, the portfolio manager of the firm's large-cap equity strategy approaches Kumar regarding the large-cap equity composite for the most recent quarter. Kumar explains that several accounts in the composite should be excluded from this quarter's performance report due to a software issue that resulted in numerous accounts not being fully invested. The resulting cash drag caused the composite to underperform the benchmark index for the quarter and year. Khan explains that he should not be held responsible for a software error. Kumar agrees and produces new reports without the affected accounts. According to Standard I(C) Misrepresentation, it is most likely that: A. no violation occurred. B. only Kumar violated the Standard.  C. both Kumar and Khan violated the Standard. Explanation "Members and Candidates must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities." Standard I(C) Misrepresentation protects investors against statements and information provided by the investing community that may undermine investor trust in the integrity of the profession. Misrepresentation can include: Plagiarism: quoting information without acknowledgment or citation of the source Omission: presenting incomplete or misleading information Exaggeration: inflating professional credentials or performance results Performance measurement and attribution is an area susceptible to selective disclosure and omission. A prime example is the concept of "cherry picking," which involves choosing only the best funds or accounts or omitting the worst for performance reporting. Omitting accounts or altering composite construction outside a clearly defined process may lead to misrepresenting composite performance. In this instance, Khan persuaded Kumar to alter the composite construction due to a one-time software issue, which improved the composite's performance. Therefore, both Kumar and Khan violated the Standard by presenting incomplete or misleading information (Choices A and B). Although the software issue may not have been Khan's fault, changing the composite constituents to omit the affected accounts violates the Standard. Also, the fact that Kumar is not yet a charterholder is irrelevant in this scenario since he, as a Candidate, is expected to uphold the Code and Standards. Things to remember: Performance measurement and attribution is an area susceptible to selective disclosure, omission, and exaggeration. "Cherry picking" involves choosing only the best funds or accounts or omitting the worst for performance reporting. Omitting accounts or altering composite construction outside a clearly defined process may lead to misrepresenting composite performance. Evaluate practices, policies, and conduct relative to the CFA Institute Code of Ethics and Standards of Professional Conduct LOS Copyright © UWorld. Copyright CFA Institute. All rights reserved.