Question of the Week – Ethical and Professional Standards

Question

Asmita Mack, CFA, lives in the country of Onionland. Each morning, Asmita crosses the border to the neighboring country of WDC where she manages client portfolios. This morning, a positive earnings report was announced for HawkBlack, Inc. (ticker KANE). Asmita would like to invest in the stock and believes it would benefit her clients as well. WDC has a law that restricts portfolio managers from investing in securities owned by their clients. Onionland has no such law. To comply with the Standard, what is the minimum that Asmita must do?

 	Not invest personally in KANE
 	Purchase KANE for her client's portfolio before her personal portfolio
 	Purchase KANE for both portfolios simultaneously

AdaptPrep · Answer

There
are two potential code issues here:

Priority of Transactions and Investment transactions. Investment transactions
for clients and employers must have priority over investment transactions in
which a Member or Candidate is the beneficial owner.

According
to this line, Asmita must purchase KANE for her clients before purchasing it
for herself.

Knowledge of the Law. Members and Candidates
must understand and comply with all applicable laws, rules, and regulations
(including the CFA Institute Code of Ethics and Standards of Professional
Conduct) of any government, regulatory organization, licensing agency, or professional
association governing their professional activities. In the event of conflict,
Members and Candidates must comply with the more strict law, rule, or
regulation. Members and Candidates must not knowingly participate or assist in
and must dissociate from any violation of such laws, rules, or regulations.

The
law says that Asmita cannot own KANE if her clients do. Because there are
different requirements, Asmita must follow the stricter practice and not invest personally in KANE.

shannondaily · Answer

Woo! I got it right. :smile: