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

81 Janis David is the head of the research department at BAW, Inc. a brokerage firm. She has decided to change her recommendation of the Cooper & Ginto Mines from sell to buy. She informs the other executives of the firm orally before a report is prepared and sent to all customers. David‟s actions are in line with the firm policy. Roger Little, one of the junior analysts at BAW immediately buys Cooper & Ginto stock for himself and informs some of his contacts who are also BAW's clients for whom it is appropriate. David has most likely violated the CFA Institute Standards of Professional Conduct related to:

David has violated Standard IV(C) by failing to supervise the actions of those accountable to her. She did not set up procedures to prevent the dissemination of or trading on the information.

82 Syed Ali works for an investment bank and is involved in the underwriting of Apex Inc. The chief accountant of Apex informs Ali that the information in the financial statements filed with the regulator by Ali overstate sales and understate expenses. Ali seeks the advice of the legal counsel of the firm who states that it will be difficult for the regulator to prove that Ali was involved in any wrongdoing. Ali has least likely violated the CFA Institute Standards of Professional Conduct related to:

Ali has clearly misrepresented some important information. By not being honest, he is also violating the standard with regards to misconduct.

83 Hari Ram and his few colleagues are planning to leave Greysons Inc., a local investment bank, to form their private consultancy. Ram has found out that one of his clients has undertaken a request for proposal to hire a new investment adviser. The RFP has been sent to Greysons and all of its competitors but its submission period will end before Ram‟s and his colleagues‟ resignations become effective. Nevertheless, Ram and the departing colleagues decide to respond to the client‟s request. They have most likely violated the CFA Institute Standards of Professional Conduct relating to:

By responding to the client’s RFP, the group of employees is competing directly with the employer, hence Standard IV(A) Loyalty is violated.

84 Richard Swanson, an analyst at Azwitz Securities, covers the oil industry. He, along with other analysts, has just visited Prell Refineries, an exploration and production company. Based on his own assessment and calculation of the drilling on-site, Swanson has concluded that the company has abundant oil reserves. This view is not shared by the other analysts who have visited the site. Swanson writes in his research report that Prell is in fact sitting on vast oil reserves and makes a buy recommendation. Has Swanson violated any of the CFA Institute Standards of Professional Conduct?

Standard V(B) Communication with Client and Prospective Clients has been violated, because Swanson’s assessment is an opinion not a fact. He did not distinguish between opinion and fact.

85 Romana Zahoor works for a local brokerage firm and is a CFA candidate. She plans to issue a buy recommendation for the stock of Basics. Before issuing the recommendation, she buys the stock for herself through her sister‟s account. Zahoor most likely violates the Standard of:

Zahoor has violated Standard VI(B) Priority of Transactions by taking advantage of her knowledge of the stock and buying it for herself rather than her client.

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Practice Spotlight

Misrepresentation

Investment professionals must not knowingly make false or misleading statements about analysis, recommendations, qualifications, services, or professional activities.

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Question:

Which of the following statements is most accurate according to the Standards of Practice Handbook? Members and Candidates:

A. who possess nonmaterial nonpublic information that could affect the value of an investment must not act or cause others to act on the information.
B. who possess material nonpublic information that could affect the value of an investment must not act or cause others to act on the information.
C. who possess nonmaterial public information that could affect the value of an investment must not act or cause others to act on the information.

Correct answer: B

Explanation:

Refer to Standard II(A) Material Nonpublic Information.

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