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Ethical And Professional Standards MCQ - Ethical And Professional Standards Section 2

1 Eileen Connors is a chief trader for Ascot Investments, a money management firm. She has been told recently by her most lucrative client Shelby Company that if the performance of its accounts did not improve they will be forced to change their money managers. Connors has purchased certain securities a few days back, whose price has gone up significantly. She has failed to allocate these trades due to her busy schedule. After the threat from Shelby, she decides to allocate the profitable trades to Shelby‟s account, while spreading the losing trades to other Ascot‟s accounts. Has Connors violated any Standard?

Connors has violated Standard III(B) Fair Dealing by failing to deal fairly with all her clients in taking these investment actions.

2 Penelope Cox is employed by Jameason Investment, and provides investment advice to the trustees of SYU University in order to recommend investments that would generate capital appreciation in endowment funds. Cox has been given internal reports by the trustees that highlight the expansion of the university. Cox is approached by Bradley Cooper, a local philanthropist who is considering a generous contribution to SYU and another university in the area, but he would like to see the expansion plans of SYU before making the donation. Cox knows that he does not want to speak to the trustees hence she gives a copy of the internal report to Cooper. Has Cox violated the Code and Standards?

Cox was given the internal reports by the trustees; because the information was confidential Cox should have refused to divulge it to Cooper. Therefore, by handing the internal reports to him Cox violates Standard III(E) Preservation of Confidentiality

3 Carla Simone, a CFA candidate and a research analyst, follows firms in the beverage industry. She has been recommending the purchase of Citrus, because of its introduction of a popular new drink for athletes and exercise enthusiasts. Simone‟s husband has inherited from a relative, the stock of Citrus worth $3.5 million. Simone has been asked to write a follow up report on Citrus. She writes the report and gives a strong buy recommendation. The report does not mention her husband‟s ownership of the stock. Has Simone violated the CFA Institute Standards?

Simone must disclose her husband’s ownership of the stock to avoid violation of Standard VI(A) Disclosure of Conflicts.

4 Babar Ahmed is a trader at Cooper & Baines, a local brokerage firm. He trades frequently in the stock of Zelle, despite the fact that Zelle is not on the recommended list of securities of Cooper. Ann Miller is the supervisor and compliance officer of Ahmad. Part of her compensation is based on the trading revenues of Cooper. She notices the large volume of trade of Zelle, but does not investigate it. Has Miller violated the CFA Institute Standards?

Yes Miller violates Standard IV (C) Responsibilities of Supervisors, by not investigating the purchase of the stock and her failure to supervise the trader’s activities

5 XYZ, an investment firm, manages pension plans of various large companies. XYZ mainly uses Greatson, Inc. for most of its trading activity. This is because the CEOs of the two companies are close friends. Greatson is more expensive than the other brokerage firms offering the same brokerage services. Its research and execution are average compared to the other brokerage firms. But Greatson absorbs XYZ‟s rent in exchange for the brokerage business given to it by XYZ. Has XYZ violated any CFA Institute Standards of Professional Conduct?

Refer to Standard III(A) Loyalty, Prudence and Care.

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Additional Compensation Arrangements

Additional compensation or benefits that could create a conflict with an employer require written consent from all parties involved.

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Question:

An independent analyst recommends a stock based on a 5-minute pre-market talk show by a reputed analyst, on the TV that morning. The recommendation is least likely a…

A. Diligence and Reasonable Basis.
B. Suitability.
C. Fair Dealing.

Correct answer: C

Explanation:

There is no evidence of discrimination among clients. However, by recommending the stock without due diligence, the analyst has violated Standard V(A) Diligence and Reasonable Basis, and Standard…

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CFA Level 1 Professional Standards MCQ – Ethics Section 2

Prepare for advanced ethics-based questions with CFA Level 1 Ethical and Professional Standards Section 2 MCQs covering professional conduct, conflicts of interest, duties to employers, investment recommendations, client communication, record retention, disclosure requirements, and responsibilities of supervisors.

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Topics Covered in CFA Ethical and Professional Standards Section 2

This section focuses on professional conduct and application of CFA ethical standards, including duties to employers, additional compensation arrangements, responsibilities of supervisors, diligence and reasonable basis, communication with clients, record retention, independence and objectivity, priority of transactions, referral fees, conflicts of interest, fair dealing, suitability, performance presentation, confidentiality, and professional responsibilities.

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