Ethics

Intro

Code of Ethics 四条总则

Standards of Conducts

, which provide a benchmark for minimal accepted behaviour helps to clarify codes.

I. Profession

人 必须有 special knowledge 才算professional

Working in certain industry 的不一定是 profession

Board of Governor - Oversight and Responsibility

• PCP

  • PCD

    • maintained by CFA board of Governor

    • oversight & responsibility

  • DRC

    • Volunteers

    • enhance the codes and standards

I. Professionalism

I(A). Knowledge of Law

• Follow the most strict one

• Consult the Legal & Compliance Advisors

• Inaction 视为违法

• Dissociate

I(B). Independence & Objectivity

• Firewall between Departments

• Flat Fee 不收东西，不收介绍（jobs or assignment）避免违反此条

• Travel Funding 尽可能自己付

• Gift: Modest Gift only

  • If 来自客户，视为 additional compensation, 收之前 disclose to employers

  • 不能收 也不能送。送的话也违背

I(C). Misrepresentation

• Correct Un-intentional Error is OK

• No Cherry-picking, No Guarantee

• No Omission, No Plagiarism

I(D). Misconduct

• 欺骗 Fraud

• 影响正常工资

• Bankrupt 不算，但是 Bankrupt due to Fraud 算

• Personal Bankruptcy 不用 disclose

• 不能被 accuse 和 investigate

II. Integrity to the Market

II(A). Material Non-public Information

促使公司 disclose Non-Public Info，公布后则可用

• The standard recommendation is for the analyst to work with the company to publicly release the material inside information. 要促使信息公开

• The specificity of the information is a key factor in determining whether a particular piece of information fits the definition of material. 信息是否可信，信息是否明确

  • 如没有 specify name，那么不算material

II(B). Market Manipulation

• Info-based: Disseminate false / misleading info

  • 只要是 等信息公开immediately就可以trade了，这样就不算violate

  • information manipulation

  • 如 manipulate model input, in good scenario

  • 如 create rumor

• Transaction based

  • Distort the price, gunshot, volume/volatility manipulation, front running

  • raising volume / price -- violate

III. Duty to Clients

III(A). Loyalty, Prudence, and Care

• Fund 背后的 investor 才是 真正 beneficiary

• When use Somebody as exclusively Broker, it must be on the best interest of clients.

• soft dollar 用作对客户有用的，CFA 报名费 大咩

• Submit to each client, at least Quarterly, an itemised statement showing

  • funds and security in custody plus all debits, credits, transaction

  • disclose to client where the assets are to bev maintained

  • distinguish clients' assets from others

• Proxy Voting Policy 要为 clients 的利益 vote, do cost-benefits analysis

III(B). Fair Dealing

• Fair != Equal

• Information should be sent to clients at the same time.

  • Widely disseminate the recommendation and provided the information to all his clients prior to discussing it with a select few 给所有人发布后，给Institutional investor打电话，可以，不violates

• Trade and Transaction Allocation should be fair.

• In the Block Trade, every participant (clients) should receive same execution price & fee. Not base on size & pro rata. (Pro rata <=> proportionally)

• 当客户行为不端，advice them。若客户简直，则继续执行

• Investment Action

  • For over-subscribed Insurance - Pro rata

  • Hot issue - Prohibit

  • Family Member - 一视同仁

III(C). Suitability

• 推荐，要符合Risk Profile，不能直接用。否则violate

• IPS, annually update

• 当客户要求与IPS不符，要 follow the investment mandate

  • If mini impact, educate clients, then do

  • If material impact, update IPS

III(D). Performance Presentation

• Accurate & Complete

• Portfolio success may be from team not from person.

• A co states to complince with GIPS, but not report return as GIPS.

• Disclose when performance calculation / Attribution method changed.

III(E). Preservation of Confidentiality 保密

• Keep (1) current (2) prior (3) prospect clients, except (1) 违法 (2) 法律要求 (3) 客户同意

• Disclose - illegal

• 若 accidentally disclose confidential info，可以补救

• cite the name of people who is under investigation also violate code and standard

  • Kovi violated Standard III(E), Preservation of Confidentiality, by citing the name of the individual currently under the regulator’s investigation.

IV. Loyalty to Employer

IV(A). Loyalty

• Cannot solicit former clients

  • Solicit Former Clients 招揽前客户 （Solicit 拉客）

• 副业

  • Competitive - disclose to employer

  • Non-competitive - not need to disclose

• 离职

  • 有竞业协议 noncompete agreement，不竞业

  • 不带走 name list

  • 可以招募原顾客，但是不能用name list，可以用公开渠道联系

  • 在离职前不能招募

  • File & Model 带走要雇主同意

• Social Media 离职后归还

• Whistleblowing 可以接发原雇主不正当行为，但是不能因私

  • 多次discuss无果，可以 whistleblowing

  • Having been unsuccessful in finding a resolution with her supervisor and the compliance officer, Rasmussen should consult the firm’s whistleblowing policy to determine the appropriate next step toward informing management of her concerns. The potentially unethical actions of the investment management division are appropriate grounds for further disclosure, so Rasmussen’s whistleblowing would not represent a violation of Standard IV(A).

IV(B). Additional Compensation

• 事前 + disclose

• 客户 gift 要 disclose，同意后才能接

• competitive兼职 disclose

• 可以 事后 补 disclose

• 非客户，可以 modest gift，客户 disclose 算作 additional compensation

IV(C). Responsibility of Supervisors

• 下属违法，有措施

• 已尽职dd，但是客户任违法，ok

  • 如果employee违法，employer不dd，则employer也违法

• 完善制度

• 制度要能做到 prevent and detect

V. Investment Analysis, Recommendation, and Action

V(A). Dilligence and Reasonable Basis

• 雇人要dd，用别人的report要dd

• Third-Party / Second-Party Report 要 (1) verify soundness (2) dd

• 如实report，发生loss 不violate，coz cannot guarantee future risks

• 引用外部资料 要dd。引用他人观点要dd，专家的scenario analysis要dd

• Quantitive Techniques要dd

• Group Reach 只要同意过程 就可以署名， even if has different idea.

  • 不能 disagree in public

V(B). Communicate with Clients and Prospect Clients

• Must 告知 investment process

• Identify risks, limitations, fators of impacts.

• Notify any Changes / Errors / Risks & Limitations

• Distinguish facts and opinions

  • Report Presentation (1) factors (2) citation of quant model

V(C). Record Retention

• retent electric & written forms are both fine

• records assets, 离职带走要employer同意

• 年数 = 7，优先按法律要求

• Records belong to the firm, not individual. Also, the firm is responsible for maintain the record not individual

VI. Conflicts of Interests

VI(A) Disclosure

• Disclosure to Employer

  1. Personal Situation

  2. Conflict to Clients

• Disclose to Clients

  1. 个人持仓

  2. Relationship to Firms

  3. Fees: referral fee / incentive fee

• Disclose Options, Disclose Comparative Schemes

VI(B). Priority of Transaction

• Clients > Employers > Self

  • 与fair dealing不同，因为fair dealing是指对所有客户。

  • 但是 priority of transaction 是指，客户 雇主 雇员 之间

• Family Accounts are equal

• give time for trading

  • 如 公布buy/sell后 给客户 1 day trading 可能不够，给1 week

VI(C). Referral Fee

• Referral Fee could be money or service (指客户帮忙拉客，给客户的好处), 无论是啥 都要 disclose 具体情况 金额

• disclose before engagement

• At least Quarterly disclose

• Appropriate disclosure means that members and candidates must advise the client or prospective client, before entry into any formal agreement for services, of any benefit given or received from the recommendation of any services provided by the member or candidate.” In this case, the disclosure does not occur until

VII. About the Exam <- Don't Be Silly

GIPS

1. Voluntary

2. Firm Wide

3. If conflicts with the law, then disclose the conflicts and follow the law.

Composite

1. Actual, (no simulated)

2. Fee-paying

3. Discretionary (Fund Manager 可以自主决定、控制的)

4. Some Mandates/Objs/Strategies

Verification

1. Firm could choose (voluntarily) to hire a third-party to check the if the firm follows the law.

2. Perform on the entire firm.

3. Verify if complie with all GIPS standard.

Time

Initially, 5 Yr (no matter how long histroy the firm has)

之后每年 +1 +1

until 10 Yr (keep 10-Yr performance disclosure)