CFA CFA Level 1 Question of the Week – Ethical and Professional Standards

Question of the Week – Ethical and Professional Standards

  • This topic has 2 replies, 2 voices, and was last updated Jan-18 by AdaptPrep.
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    • AdaptPrep
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      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
    • shannondaily
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      Woo! I got it right. 🙂 

    • AdaptPrep
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      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.

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