Term
| Constituencies of investment professionals |
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Definition
| clients, employers, investors, the public, and the profession |
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Term
| General Topics for Standards of Professional Conduct |
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Definition
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 CFA Intstitute Member or Candidate |
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Term
| Standards of Professionalism |
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Definition
A. Knowledge of the Law
B. Independence and Objectivity
C. Misrepresentation
D. Misconduct |
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Term
| Standards of Integrity of Capital Markets |
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Definition
A. Material Nonpublic Information
B. Market Manipulation |
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Term
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Definition
A. Loyalty, Prudence, and Care
B. Fair Dealing
C. Suitability
D. Performance Presentation
E.Preservation of Confidentiality |
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Term
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Definition
a. Make reasonable inquiry into a client's investment experience, risk and return objectives, and financial constraints and reassess and update this information regularly
b. determine whether an investment recommendation is consistent with client's written objectives, mandates, and constraints
c. judge suitability of investment(s) in context of client's total portfolio |
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Term
| Exceptions to Confidentiality |
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Definition
1. information concerns illegal activities on part of client or prospective client
2. disclosure is required by law
3. the client or prospective client permits disclosure of the information |
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Term
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Definition
A. Loyalty
B. Not accept compensation that creates conflict of interest
C. Supervision |
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Term
| Standards of Investment analysis, recommendations and actions |
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Definition
1. Diligence and reasonable basis
2. Communicate to clients and prospective clients basic format and general principles of processes used to analyze, use reasonable judgment in identifying factors important to analyses and include in communication, and retain records |
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Term
| Duties RE: Conflicts of Interst |
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Definition
1. Disclose all matters that could impair objectivity or intefere with duties to clients, prospective clients, and employer
2. transactions for clients and employers must have priority over transactions where member or candidate is beneficial owner
3. Disclose any compensation paid to others for recommendation of products or services |
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Term
| Responsibilities as CFA Member or Candidate |
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Definition
1. not engage in any conduct that compromises reputation of CFA institute or designation
2. When referring to CFA Institute members and candidates must not misrepresent or exaggerate the meaning or implications of membership, holding of designation, or candidacy in program |
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Term
| Code and Standards require members and candidates to report violations to appropriate governmental or regulatory organization |
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Definition
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Term
| Procedures for Compliance |
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Definition
1) Stay Informed
2) Review Procedures
3) Maintain current files and records |
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Term
| Members may accept bonuses or gifts from clients |
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Definition
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Term
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Definition
| Any untrue statement or omission of fact or any statement that is otherwise false or misleading |
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Term
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Definition
| significant conclusions derived from the analysis of public and nonmaterial nonpublic information can be used even if those conclusions would have been material inside information had they been communicated directly to the analyst |
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Term
| Transaction-based manipulation |
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Definition
-transactions that artificially distort prices or volume to give teh impression of activity or price movement in a financial instrument
-securing a controlling, dominant position in an instrument to exploit and manipulate the price of a related derivative and/or the underlying asset |
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Term
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Definition
| direct or indirect access to client funds |
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Term
| Soft Commissions (Soft Dollars) |
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Definition
| When investment manager uses client brokerage to purchase research services that benefit the investment manager |
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Term
| Requirements for Quarterly Statements |
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Definition
1) itemized list of funds and securities in the custody or possession of the member or candidate
2) All debits, credits, and transactions occurring during the period
3) where assets are maintained or where/when they are moved |
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Term
| Investment recommendation |
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Definition
| Any opinion expressed by a member or candidate in regard to purchasing, selling, or holding a given security or other asset |
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Term
| Manner in which recommendations distributed to clients |
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Definition
| all clients must have fair opportunity to act on |
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Term
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Definition
| securities of a public offering that trade at premium in the secondary market whenever trading commences because of high demand (e.g. IPO) |
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Term
| Guidelines to facilitate fair dealing with clients |
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Definition
1) Limit number of people involved
2) Shorten time frame between decision and dissemination
3)publish guidelines for pre-dissemination
4)simultaneous dissemination
5)maintain lists of clients and holdings
6)establish and disclose written trade allocation procedures
7)systematically review all accounts at regular intervals
8)disclose levels of service |
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Term
| Procedures for handling block trades and new issues |
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Definition
1) orders should be in writing and time stamped
2)execute orders on a first-in first-out basis
3)have policies for setting execution prices and how to allocate partial fills
4)give all participants same execution price and same commission
5)allocate partially executed orders among participants pro rata on the basis of order size
6)for new issues - allocate securities by client based on advance interst rather than by manager |
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Term
| Requirements for Suitability |
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Definition
1)Inquire about and understand:
a)client's investment experience
b)risk and return objectives
c)financial constraints
2) ensure actions consistent with client's written objectives and mandates
3)judge whether suitable in context of client's total portfolio |
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Term
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Definition
1)type of client, existence of > 1 beneficiary, and portion of total clients assets
2)return objectives and risk tolerance
3) Constraints (liquidity, cashflow, investment funds available, time horizon, tax considerations, regulatory and legal circumstances, investor preferences, prohibitions, and needs, proxy-voting responsibilities and guidance
4)Performance measurement benchmarks |
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Term
| Exceptions to Confidentiality |
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Definition
1) information concerns illegal activity on part of client
2)disclosure is required by law
3)client gives permission for disclosure |
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Term
| Standard IV(A) precludes members from entering into independent business while still employed |
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Definition
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Term
| Violations of duty when leaving an employer |
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Definition
1)misappropriation of trade secrets
2)misuse of confidential information
3)solicitation of employer's clients
4)self-dealing
5)misappropriation of client lists |
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Term
| Members and candidates must obtain written permission from their employer before accepting compensation or benefits from 3rd parties |
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Definition
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Term
| If a supervisor identifies a violation they should. . . |
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Definition
Respond promptly
Determine scope of wrongdoing with a thorough investigation
Increase supervision or place limitations on wrongdoer pending outcome of investigation |
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Term
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Definition
| research conducted by someone else in the member's or candidate's firm |
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Term
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Definition
| research conducted by entities outside the member or candidate's firm |
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Term
| Criteria for sound research |
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Definition
assumptions are clear and correctly applied
analysis is suffciently rigorous
analysis is timely
analysis is objective and independent |
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Term
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Definition
| CFA Institute recommends at least seven years |
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Term
| CFA Member Responsibilities |
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Definition
1) remit annually a completed Professional Conduct Statement
2)pay applicable annual dues |
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Term
| Brokers are obligated to not delay executing and order requested by a client |
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Definition
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Term
| Brokerage commissions may be. . . |
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Definition
1) directed to pay for securities research used in managing a client's portfolio
2)used if use is in best interests of the client and commensurate with the value of services provided
3) directed to a particular broker if directed to by client |
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Term
| An analyst is not prohibited from writing a report because of a potential conflict as long as . . . |
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Definition
| That special relationship is disclosed in the report |
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Term
| It is not acceptable to base a recommendation on an expectation of future events because they are uncertain |
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Definition
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Term
| When entering into compensation arrangement beyond that provided by their firm a member or candidate must |
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Definition
| disclose the arrangement in writing to their employer and obtain their employer's permission to enter into the arrangement |
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Term
| CFA Members and candidates are prohibited from undertaking independent practice in competition with their employer |
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Definition
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Term
| Misleading performance reporting |
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Definition
1)Representative accounts as top performing
2)Survivorship bias = presenting an average that excludes accounts that left firm for poor performance
3)Varying time periods - using a selected time period of good performance |
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Term
| Compliance with the GIPS standards is not required by any legal or regulatory authorities |
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Definition
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Term
| Only firms that manage assets can claim compliance with GIPS |
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Definition
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Term
| Beneficiaries of GIPS compliance |
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Definition
1)investment management firms
2) prospective clients |
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Term
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Definition
| aggregation of discretionary portfolios into a group that represents a particular investment objective or strategy |
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Term
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Definition
1) Obtain worldwide acceptance for calculation and presentation of performance in a fair comparable format
2)Ensure acccurate and consistent data for reporting, record keeping, marketing, and presentations
3)Promote fair global competition
4)Foster notion of effective global self-regulation |
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Term
| Minimum history for GIPS compliance |
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Definition
| 5 yrs or since the inception of FIRM or COMPOSITE if in existence for less than 5 yrs. |
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Term
| GIPS reporting requirements > 5 yrs |
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Definition
| Add annual performance each year going forward up to 10 yrs. at a minimum |
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Term
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Definition
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Term
| Linking non-compliant GIPS history to compliant |
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Definition
| no non compliant history is presented after 1/1/2000 and discloses the periods of noncompliance |
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Term
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Definition
| CVG compliant performance history prior to 1/1/2006 is ok but record must continue to be compliant with CVG and GIPS up to the 10 year minimum or since inception |
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Term
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Definition
1) Quarterly valuation of real estate investments
2)must value portfolios on date of all large external cash flows
3)must value portfolios as of calendar month end or last business day
4)COMPOSITE returns must be calculated by asset weighting the individual portfolio returns at least monthly
5)carve out returns are not permitted to be included in single asset class COMPOSITES unless managed separately with their own cash balances |
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