IMC U1 C2

• Ethical behaviour is therefore important for a number of reasons, such as:
• -Building public trust in financial markets, which encourages wider participation in them
• -Promoting trust in investment professionals, encouraging the public to use professionals to manage and advise on their investments
• -Instilling trust in other stakeholders, including providers of capital to the industry such as shareholders or providers of finance for transactions
• -Earning the trust of regulators, allowing greater scope for self-regulation and less restrictive regulation of the participants in capital markets

• 1.Act in an ethnical manner
• 2.Integrity is paramount and clients always come first
• 3.Use reasonable care. Be independent
• 4.Practice in an ethical manner with public, employees, employers, clients, etc
• 5.Promote the integrity and viability of global capital markets
• 6.Maintain and improve professional competence of self and others- be compotent

1A→ Understand and comply with laws, rules and regulations

• In event of a conflict→ comply with strictest law/rule/regulation
• SHOULD: have up to date and appropriate knowledge of relevant regulation requirements
• Seek advice from compliance if in doubt 
• Suspect a violation= report to supervisor/compliance in firm OR Dissociate from illogical/unethical behaviour and resign if necessary 

1B→ independence and objectivity

• Don’t be bribed or have independence compromised
• Reject anything that can influence research or independent recommendations 
• Examples of bribery= pressure from employer OR gifts/inducements from companies/clients
• PROFESSIONAL SHOULD:
• Pay for own transport, costs or accom
• Avoid issuer acting as your host
• Decline excessive gifts or hospitality

1C→ misrepresentation

• Don’t misrepresent own/firm qualifications, services provided, own/firms performance record or guaranteeing returns on risky investment
• Plagiarism included: keep record of sources, acknowledge quotes and cite sources of stats used

1D→ Misconduct (professional and not personal conduct)

• Don’t engage in any conduct including dishonesty, fraud or deceit or commit acts that adversely impact professional reputation, integrity or competence
• Example→ excessive drinking, manipulating expense accounts

• 2A→ material non-public information
• Don’t cause people to act on non-public information that could impact an investment’s value
• (price sensitive) Material? • Have an impact on the price of a security; or • A reasonable investor would want to know before making an investment decision
• (not shared in marketplace/not everyone knows) Non-public? • Has not been disseminated in the marketplace 
• Safeguard → investment firms set up information barriers (or ‘firewalls’); less people know, less chances of information being abused/misused → can allow mosaic theory (analyst using variety of sources on non-material information to make company valuations- not a breach)
• 2B →Market manipulation
• Don’t engage in practices that can artificially inflate trading volumes/distort prices to intentionally mislead market participants
• Taking a dominant position in a security to manipulate its price
• E.g. completing transactions that distort prices or volumes OR falsifying company strength to sell at high price and buying back at lower price
• Avoid disseminating false/misleading information → Comes with criminal/civil penalties for market manipulation 

3A→ loyalty prudence and care

• Always act in benefit of clients’ interest before employers, and then before your own 
• E.g. using dealing commission to buy investment research (soft commission)
• Broker A- 25% commission
• Broker B- 10% commission→ client would get more shares at a lower cost than otherwise
• But firm might get a deal with Broker A of trading resulting in a ‘gift’ from broker; perhaps lower price research paid from the client 
• Disadvantaging client to get the ‘gift’ and ‘gift’ would be paid through extra commission payment from client 
• If research has direct benefit to client, it might be fine, otherwise it shouldn’t be done 
• dealing commission rules are designed to limit the ability of investment managers to pass certain management costs through to their customers 
• Should:
• Ensure getting best price and execution for trades
• Ensure goods and services purchased with dealing commission are done with clients benefit in mind
• Always vote on proxy issues- unless advised otherwise by client 

3B- fair dealing→ 

• Don’t favour one client over another when sharing recommendations or taking investment actions 
• Act in clients benefit and treat discretionary and non-discretionary clients equally 
• Discretionary- decision-making outsourced to firm, client opts in to this
• Advisory- offer advice and client decides to execute the firm’s recommendations
• Execution only-  follow client instructions to execute their dealing/buying + selling as instructed

3C- suitability→

• Advisory client relationship→ 
• Enquire clients experience, risk and return objectives and financial constraints 
• Determine that investment is suitable – sustainability in context of client’s total portfolio
• Managing portfolio → 
• Make recommendations consistent with stated objectives and constraints of portfolio (liquidity, time horizon, legal constraints, investment objectives)

3D→ performance presentation

• Communicating performance must be fair, accurate and complete 
• Compliance is voluntary (NOT MANDATORY) but should adopt CFA GIPS (Global Investment Performance Standards) to align with ethics standards

3E→ preserving confidentiality

• Information must be confidential for current, former and prospective clients UNLESS
• 1) Information is about illegal activity 2) Disclosure is required by law 3) Client permits the disclosure of information

7A→ responsibilities as CFA member/candidate 

• Do not compromise the reputation for integrity of the CFA Institute, the CFA designation or the CFA Institute Programmes’
• ‘Do not misrepresent or exaggerate the meaning or implications of membership in the CFA Institute, holding the CFA designation or candidacy in the CFA Program’

• 4A→ loyalty 1) Act for benefit of employer and not deprive them the benefit of your skills and abilities 2) Are allowed to practice privately and with employer- with permission 3) When planning to leave ; may prepare to undertake independent practice BUT must still act in employer’s interest (not compete with employer) until resignation is effective 
• 4B→ additional compensation arrangements 1) Don’t accept gifts, compensation, consideration that creates a conflict of interest with employer UNLESS with written consent from all parties
• Additional compensation= payments or benefits from clients and 3rd parties
• 4C→ responsibility of supervisor (*possible exam focus!)
• Ensure anyone reporting to you complies with laws, rules, regulations and Codes and Standards
• Rely on compliance procedures:
• • Clearly written and accessible
• • Outline permissible conduct
• • Implement a system of checks
• • Designate a compliance office
• • Outline procedure for reporting violations
• • Define the hierarchy of supervision and assign duties to supervisors

• 5A→ diligence and reasonable basis 
• Exercise diligence, independence (bias-free) and thoroughness in analysing investments, making recommendations and taking actions
• Have reasonable and adequate basis (evidence) for investment analysis, recommendation or action
• Applicable for primary (own research), secondary (other research within firm) and third-party research (research outside firm)
• If information is suspected (!) to be inaccurate it cannot be used 
• 5B→ communication with clients
• Disclose basic format and general principles of investment process
• Disclose limitations and risks involved
• Use reasonable judgement in identifying important factors in investment analysis, research, recommendations and actions and include them in client communications
• Make distinction nbetween fact and opinion in investment analysis and recomnedations
• Ensure clients understand information sent to them 
• Fact vs opinion? → statements/information on forecast future performance = must be labelled as an opinion
• 5C→ record retention
• develop and maintain appropriate records to support analysis, recommendations and actions

• 6A→ Disclosure of conflicts 
• Make full and fair disclosure on all matters that could impair independence and objectivity, OR conflict with duties to clients, prospective clients and employer
• Purpose→ all parties evaluate objectivity of advice or investment actions 
• Potential matters to disclose→ director or indirect beneficial interests, directorships, underwriting or broker dealing services
• report to employer→ discuss with compliance or supervisor 
• 6B→ priority transactions
• Transactions for clients and employers have priority over transactions where member is beneficial owner
• Clients come first
• Family accounts- treated as normal client accounts 
• Observe blackout or restricted periods- do not front-run client trades
• 6C→ referral fees
• Disclose to employer, clients, prospective clients any compensation, consideration or benefit received from/paid to others for recommendation of products or services
• Disclose: nature of benefit and estimated monetary value