Ethical And Professional Standards MCQ - Ethical And Professional Standards Section 1

61 Julie Grosky, CFA, works for Harvest Mutual Fund where she manages a fixed income fund. In a hastily compiled performance review, Grosky reports to her clients that her fund has exceeded the benchmark by 0.20%. Stuart Brennan is a client of Harvest, who writes back to inform Grosky that the fund actually underperformed the benchmark. Grosky incorrectly blames the error on a computer program newly implemented at Harvest. Grosky least likely violated the Standard relating to:

Standard I(B) Independence and Objectivity involves members and candidates not accepting any gifts or benefits that could be expected to compromise their independence and objectivity. Since no benefits were received Grosky has least likely violated I(B). Grosky most likely violated the Standards I(C) Misrepresentation, and I(D) Misconduct because she knowingly misrepresents the cause of the error.

62 Bryan Lee, CFA, works as a fund manager for Westlink Securities which historically has focused on US equities. Due to his past experience, Lee is also knowledgeable about emerging markets. After discussing the matter with the Chief Investment Officer (CIO) of Westlink, he decides to extend his fund‟s investment universe to include equities from emerging markets. The firm‟s marketing and promotional literature is updated to reflect the change in investment strategy. Has Lee violated any Standard?

Westlink and Lee’s current clients need to be informed along with the prospective clients, of the change in the fund’s mandate since they might have objections concerning the Fund’s new allocations. Hence Standard V(B) Communications with Clients and Prospective Clients is most likely violated. Significant risks and limitations of the new investments should also be disclosed along with their impact on the fund as a whole.

63 Siri Shekar, CFA, manages a balanced fund at Starlight Investments. She realizes that the fund‟s holdings in the stock of GYI Company are excessive, and selling the stock will not be easy since it is thinly traded. Shekar is also a regular participant in various social media sites as well as internet chat rooms where she mentions that GYI is going into the expansion. The company has not yet announced any expansion plans. Shekar believes that this will build interest in the stock and she will be able to get rid of some of her stock‟s overweight position. Shekar least likely violated the CFA Institute Standards of Professional Conduct related to:

A is incorrect because Shekar was trying to artificially boost the price of the GYI’s stock in order to sell her holdings. C is incorrect because there is no basis for her statements in social media sites. Refer to Standard II(A) Material Nonpublic Information, Standard II(B) Market Manipulation, and Standard V(A) Diligence and Reasonable Basis.

64 Nick Nader, CFA, works as a trader for Trust Investment Bank. During lunch he receives a phone call from a longtime friend Chris Sandler, who is a trader at SYI Securities. Sandler talks about various market rumors and tells Nader about a software company which is going through merger talks with another company in the same industry. Nader has a large purchase order from his portfolio manager for this stock. He searches various internet reports and the software company‟s website but finds no such news of the merger. Upon returning to his desk he places the order aggressively and completes it by the next day before the company releases any information. Has Nader violated any Standard?

Nader did not violate any Standard. There are always rumors in the market, before an official release by the company. Unless Nader knew that Sandler was in a business relationship with the merger companies, there was no reason to suspect that he was receiving nonpublic material information.

65 Shazi Agnimukha, a CFA candidate, writes in her blog after taking the Level II exam of the CFA program. She posts that the derivatives part of the exam was very easy while the ethics questions were difficult and time consuming. She further writes that a question from ethics was not properly structured and she was confused by the language. Agnimukha further describes a question in the Fixed Income portion in detail and asks if anyone can explain it to her. Agnimukha has most likely violated the Standard related to:

Agnimukha has violated Standard VII(A) Conduct as Participants in the CFA Institute Programs by sharing exam content, undermining the validity and integrity of the exam and CFA Institute Programs.