Professional Documents
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CFA L1 Ethics Notes
CFA L1 Ethics Notes
3 120+120=240 1
10 A/B
70%
Notes (equity
fixed income )
Ethics 18 #1-18 36
Code of ethics // (6 ) 2
Standards (7 )
Code of Ethics
1. (integrity , competence , diligence
, respect , ethical manner)
(public, client, prospective clients, employers, employees,
colleagues, other)
2. >, ( 5 )
3.
(reasonable care and exercise independent professional
judgment)
4. Practice and encourage others to practice in a professional and
ethical manner that will reflect credit on themselves and the
profession
5. (promote the
integrity and viability )
6. (maintain and improve their
professional competence and strive to maintain and improve the
competence of other investment professionals)
I. PROFESSIONALISM
I(A) Knowledge of law ->->
: applicable/directly
governing
( dissociate)
Case study:
disclose ( I(B)
)
written consent (
)
;
/
1. Buy-side clients
()
IBD research
(outside manager)
outside manager
3. Investment banking relationships
research and IBD, research
IBD
IBD IBD
Case study:
Example 7
(
)
broker broker
,
Tip:
( though)
Example 15 composite : , ABCDEFG, ABC
ABC composite ,
portfolio composite portfolio
( portfolio) composite
( portfolio)
(new in 11ed)
1. outcome (given growing use of models and technical
analysis) fact ()
2.encourage firm to develop strict policies to prevent cherry-picking
for composite
()
1.
2. use excerpt from other report without acknowledgement
3.citing leading analysts or investment experts without naming
specific reference
4.using charts and graphs without stating sources
5.using others statistical estimates without including the qualifying
statements or caveats
6.using third-party information
( care and diligence
)
:
1. duration standard deviation well-known
:
2. GDP,CPI
3.:
4.
Performance Reporting
Misrepresent success of performance through incomparable benchmark
selection ( benchmark?
portfolio
)
most appropriate benchmark comparable to their
strategies (
)
I(C) does not require that a benchmark always be provided in order to
comply ( hedge fund benchmark benchmark
)
Illiquid or non-traded securities
Misrepresent may occur when valuations for illiquid or non-traded
securities are available from other sources
Social Media
()
I(D) Misconduct /
misconduct(
) misconduct
misconduct
Dishonest ()
Abusing alcohol during business hour
Personal bankruptcy
misconduct() misconduct,
Clear impact
Company-related information
Earnings
Mergers, acquisitions, tender offers, or joint ventures
Changes in assets or asset quality
Innovations products, processes, or discoveries
New licenses, patents, registered trademarks, or regulatory
approval/rejection of a product
Developments regarding customers or suppliers (e.g. the
acquisition or loss of a contract)
Changes in management
Changes in auditor notification or the fact that the issuer may no
longer rely on an auditors report or qualified opinion
Events regarding the issuers securities (
, )
Bankruptcies
Significant legal disputes
New or changing equity or debt rating issued by third party
Macro-economy
Government reports of economic trends (interest rate, employment,
housing starts, currency information, etc.)
Large orders ()
Orders for large trades before they are executed
Well-known analyst
Reports from well known analyst
Qualified personnel (new in 11ed)
Information about trials of a new drug
Educated conjecture by subject experts not connected to the trials
is unlikely to be material
Competitors
Competitors estimation -- not MNI
II(A)
Analyst is not a company insider, and has no access to
inside information. Presumably, the analyst created the report from
public information and by using his expertise to interpret the
information. His hard work, paid for by clients, generated the
conclusions. Simply because the public in general find the conclusions
material does not require that the analyst make his/her work public.
Investors who are not clients of the analyst can either do the work
themselves or become clients of the analyst for access to the analysts
expertise.
Info-based
Transaction-based (
()
)
(): 1. Trading strategies, especially
hedge fund buy and sell ,
2.tax purposes, 12 loss 1
()3.to increase liquidity,
Futures Exchange made agreements w/ members to insure minimum trading
volume in exchange for reduction of commission -> if for the interest of
clients and disclosed, not violate.
3.Mandate
Mutual fund (
)
Fiduciary ()
: investment manager, advisor
nature
: trade execution professional
use
their skills and diligence to prudently work in the clients interest.
Voting proxy
Client fund manager , client
by contract client has delegated his voting proxy to his fund manager
Fund manager clients interest
Fund manager cost-benefit analysis,
(voting proxies
may not be necessary in all instances)Member/candidate/fund manager
disclose to clients their proxy voting policies
III(C) Suitability
III(D) Performance presentation
III(E) Preservation of confidentiality
IV. DUTY TO EMPLOYER
GIPS
Who can claim compliance GIPS
Complying with the GIPS standards is voluntary
Only an investment management firm that actually manage assets can
claim compliance once the firm has satisfied all requirements of
the Standards. ( subsidiary
divisionmutual fund
)
Compliance is a firm-wide process that cant be achieved on a
single product or composite
The firm must use the following compliance statement to indicate
that the firm is in compliance with the GIPS standards
[Insert name of firm] has prepared and presented this report in
compliance with the Global Investment Performance Standards (GIPS)
In case in which applicable local or country-specific laws or
regulations conflict with the GIPS, the standard requires firms to
comply with the local law or regulation and make full disclosure
of the conflict
Composites
A composite is a grouping of individual discretionary portfolios
representing a similar investment strategy, objective, or mandate.
// portfolio ();
composite
Reporting on the performance of composites gives clients and
prospects information about the firms success in managing
various types of securities or results for various investment
styles.
A composite, such as Global Equities, must include all portfolios
(current and past) that the firm has managed in accordance with
this particular strategy.
The firm should identify which composite each managed portfolio is
to be included in before the portfolios performance is known.
This prevents firms from choosing portfolios to include in a
composite in order to create composites with superior returns.
cherry-picking
Discretionary:
Non-discretionary:
(<40%), composite
Fee-paying portfolio: composite (
)
Verification
GIPS, Verification is
voluntary!
Verification is the review of an investment management firms
performance measurement processes and procedures by an independent
third-party verifier.
Verification tests:
o Whether the firm has complied with all the composite
construction requirements of the GIPS standards on a firm-
wide basis.
o Whether the firms processes and procedures are designed to
calculate and present performance results in compliance with
the GIPS standards.
A single verification report is issued in respect of the whole
firm; verification cannot be carried out for a single composite.
Third-party verification brings credibility to the claim of
compliance and supports the overall guiding principles of full
disclosure and fair representation of investment performance.
Key characteristics
Define its firm. This definition should reflect the distinct
business entity that is held out to clients and prospects as the
investment firm
GIPS are ethical standards for performance presentation which
ensure fair representation of results and full disclosure
0-5 general
5. GIPS 5 ( 5 )
10 GIPS Composite returns must be
clearly identified as gross-of-fees or net-of-fees.