Ethical and Professional Standards Q67

67Vladmir Seriozha, CFA, is fixed-income analyst at Rasputin Securities and describes the investment strategy of securities in a report to the firm‟s clients which is based on scenarios of certain declines in interest rates. The report explains the interest rate model which shows the increase in securities‟ valuations as rates decline. The model does not capture the risks of investment if the rates rise. Seriozha informs all the existing clients about the model's weakness in capturing the risks related to investments in case of an increase in interest rates, but all the promotional material for new clients does not carry this disclosure. Seriozha has most likely violated the Standard related to:

Option : A
Explanation : Standard V(B) Communications with Clients and Prospective Clients has been violated. Seriozha has not run the downside risks and has not explained the limitations of his model with respect to a change in rates contrary to the one he has reported. Members and Candidates must adequately disclose the marketrelated risks and limitations contained in their investment products and recommendations especially in their investment process.

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