Table of Contents:
How to Use the CFA Program Curriculum v
Curriculum Development Process v
Organization of the Curriculum vi
Features of the Curriculum vi
Designing Your Personal Study Program viii
Feedback ix
Ethical and Professional Standards
Study Session 1 Code of Ethics and Standards of Professional Conduct 3
Reading 1 Code of Ethics and Standards of Professional Conduct 5
Preface 5
Evolution of the CFA Institute Code of Ethics and Standards of
Professional Conduct 6
Standards of Practice Handbook 6
Summary of Changes in the Eleventh Edition 7
CFA Institute Professional Conduct Program 9
Adoption of the Code and Standards 10
Acknowledgments 10
Ethics and the Investment Industry 11
Why Ethics Matters 11
CFA Institute Code of Ethics and Standards of Professional Conduct 15
Preamble 15
The Code of Ethics 15
Standards of Professional Conduct 16
Reading 2 Guidance for Standards I–VII 21
Standard I: Professionalism 21
Standard I(A) Knowledge of the Law 21
Guidance 21
Recommended Procedures for Compliance 26
Application of the Standard 27
Standard I(B) Independence and Objectivity 30
Guidance 30
Recommended Procedures for Compliance 35
Application of the Standard 36
Standard I(C) Misrepresentation 43
Guidance 43
Recommended Procedures for Compliance 46
Application of the Standard 48
Standard I(D) Misconduct 53
Guidance 53
Recommended Procedures for Compliance 54
Application of the Standard 54
Standard II: Integrity of Capital Markets 56
Standard II(A) Material Nonpublic Information 56
Guidance 56
Recommended Procedures for Compliance 60
Application of the Standard 63
Standard II(B) Market Manipulation 68
Guidance 68
Application of the Standard 69
Standard III: Duties to Clients 73
Standard III(A) Loyalty, Prudence, and Care 73
Guidance 73
Recommended Procedures for Compliance 77
Application of the Standard 78
Standard III(B) Fair Dealing 82
Guidance 82
Recommended Procedures for Compliance 84
Application of the Standard 86
Standard III(C) Suitability 90
Guidance 90
Recommended Procedures for Compliance 93
Application of the Standard 94
Standard III(D) Performance Presentation 97
Guidance 97
Recommended Procedures for Compliance 98
Application of the Standard 98
Standard III(E) Preservation of Confidentiality 101
Guidance 101
Recommended Procedures for Compliance 103
Application of the Standard 103
Standard IV: Duties to Employers 105
Standard IV(A) Loyalty 105
Guidance 105
Recommended Procedures for Compliance 109
Application of the Standard 109
Standard IV(B) Additional Compensation Arrangements 116
Guidance 116
Recommended Procedures for Compliance 116
Application of the Standard 116
Standard IV(C) Responsibilities of Supervisors 118
Guidance 118
Recommended Procedures for Compliance 120
Application of the Standard 122
Standard V: Investment Analysis, Recommendations, and Actions 126
Standard V(A) Diligence and Reasonable Basis 126
Guidance 126
Recommended Procedures for Compliance 130
Application of the Standard 130
Standard V(B) Communication with Clients and Prospective Clients 137
Guidance 138
Recommended Procedures for Compliance 140
Application of the Standard 141
Standard V(C) Record Retention 146
Guidance 146
Recommended Procedures for Compliance 147
Application of the Standard 148
Standard VI: Conflicts of Interest 149
Standard VI(A) Disclosure of Conflicts 149
Guidance 149
Recommended Procedures for Compliance 152
Application of the Standard 152
Standard VI(B) Priority of Transactions 157
Guidance 157
Recommended Procedures for Compliance 158
Application of the Standard 160
Standard VI(C) Referral Fees 162
Guidance 162
Recommended Procedures for Compliance 162
Application of the Standard 162
Standard VII: Responsibilities as a CFA Institute Member or CFA Candidate 165
Standard VII(A) Conduct as Participants in CFA Institute Programs 165
Guidance 165
Application of the Standard 167
Standard VII(B) Reference to CFA Institute, the CFA Designation, and the CFA Program 170
Guidance 170
Recommended Procedures for Compliance 174
Application of the Standard 174
Practice Problems 177
Solutions 187
Study Session 2 Ethical and Professional Standards in Practice 195
Reading 3 Application of the Code and Standards 197
Introduction 197
The Consultant 198
Mark Vernley 198
The Consulting Contract 199
Evaluation of the Situation 199
Pearl Investment Management (A) 202
Knowledge of the Law and Obligation to Obey 203
Responsibilities of Supervisors 204
Trading for Personal Accounts 204
Maintaining Confidential Client Information 205
Pearl Investment Management (B) 206
Responsibility of Candidates to Comply with the Code and Standards 206
Dealing with Clients 207
Errors in Client Accounts 208
Pearl Investment Management (C) 208
Proper Care and Independent Judgment 210
Use of Insider Information 210
Using the Research of Others 211
Reasonable Basis for a Research Opinion 211
Relevant Factors and Fact versus Opinion in Research Reports 212
Misrepresentation of Services and Performance Presentation 212
Practice Problems 214
Solutions 231
Reading 4 Asset Manager Code of Professional Conduct 239
Introduction 239
Adopting the Code and Claiming Compliance 241
Acknowledgement of Claim of Compliance to CFA Institute 241
General Principles of Conduct 241
Asset Manager Code of Professional Conduct 242
Loyalty to Clients 242
Investment Process and Actions 242
Trading 242
Risk Management, Compliance, and Support 243
Performance and Valuation 243
Disclosures 243
Appendix 6—Recommendations and Guidance 244
Loyalty to Clients 244
Investment Process and Actions 245
Trading 248
Risk Management, Compliance, and Support 250
Performance and Valuation 254
Disclosures 255
Practice Problems 259
Solutions 264
Glossary G–1
Index I–1
