Contents

1. 1 Standards of Professional Conduct
   1. 1.1 I. Professionalism
   2. 1.2 II. Capital Markets
   3. 1.3 III. Duties to Clients
   4. 1.4 IV. Duties to Employers
   5. 1.5 V. Investment Analysis, Recommendations
   6. 1.6 VI. Conflicts of Interest
   7. 1.7 VII. Responsibilities of CFA member
2. 2 Global Investment Performance Standards

Standards of Professional Conduct

Market > Client > Employer > Self

I. Professionalism

A. Knowledge of law

• comply with the stricter/st of local law and the Standards
• knowingly violating other Codes and Standards
• dissociate from the activities if cannot be remedied

1. seek advice
2. dissociate
3. report to 3rd party

B. Independence and Objectivity

• travel expenses and compensation for research report OK if disclosed in report
• gift OK if decision not affected and disclosed
• recommended to pay own air and hotel expenses

C. Misrepresentation

• mislead over/understate
• presenting material developed by another without acknowledgment
• factual data from recognized statistical reporting service need not be cited
• OK to make truthful statements that investment such as treasury fund as guaranteed

D. Misconduct

• problematic if disturbs work or performance
• ok if not impacted work
• misleading or vague statements/recommendations
• prohibits general lying, cheating, stealing, or any dishonest conduct

II. Capital Markets

A. Material nonpublic information

• price distorting practices or false rumors

B. Market manipulation

• use of nonpublic information that can affect market price
• Mosaic theory : no violation if material*public + nonmaterial*nonpublic information used

III. Duties to Clients

A. Loyalty, Prudence and Care

• solely, exclusive, client first
• fiduciary duty to those persons and interests by whom the duty is owed
• does not require all proxy voting
• soft dollars: use of research and investment decision-making services provided by a third party in return for commission business on client trading
  • acceptable if helps service to clients, strictly prohibited for personal usage
  • pension funds: duty of loyalty to the beneficiaries, not the manager

B. Fair dealing

• no diversification
• overgenerous allocation of "hot" issues
• recommended that members maintain a list of clients and their holdings, develop written procedures for trade allocation, review accounts systematically to ensure that no client is given preferred treatment

C. Suitability

• based on clients' risk and return objectives
• look for overall effect on the whole portfolio, need not be applied on an issue-by-issue basis
• detailed analysis of the investment
• Investment Policy Statement should update client information at least annually

D. Performance presentation

• disclosure in detail
• supporting documents
• best method to meet obligation is compliance with the GIPS

E. Preservation of Confidentiality

• unless illegal, required by law, or with client permission
• report to outside counsel first

IV. Duties to Employers

A. Loyalty

• corporate material stays unless permission granted from previous employer
• non-compete agreement
• former employees not prohibited from contacting clients of previous firm, as long as the contact information does not come from the records of the previous employer
• may reproduce model from memory without explicit permission if can be done with supporting documentation in compliance

B. Additional Compensation arrangement

• written permission from employer required before accepting an offer of compensation

C. Responsibilities of Supervisors

• adopt code of ethics
• increasing suspicion, limit employees' activities, increased supervision, investigation
• speaking to the employee to determine the extent of the violations and receiving assurances not enough
• if compliance procedures seem inadequate, decline in writing supervisory responsibility until adequate procedures are adopted

V. Investment Analysis, Recommendations

A. Diligence & Reasonable basis

• no copycat
• reasonable and independent
• analysis and recommendation
• review assumptions used and evaluate the objectivity of externally generated research reports

B. Communication with Clients

• disclose all supporting materials
• should provide all available information if requested
• future events should not be presented as certainties
• disclosure to all clients and prospects of the firm
• properly distinguish between facts and opinions

C. Record retention

VI. Conflicts of Interest

A. Disclosure of conflicts

• conflicts between clients' and employers' interests
• reveal anything that would interfere with clients' interests
• disclose to clients of any ownership in securities recommended
• disclosure to both clients and employer of all matters that could interfere with objective recommendations

B. Priority of transaction

• limit activities on own account
• personal transaction after disclosure to all clients
• prohibited front-running: purchase or sale of securities in advance of client trades to take advantage of knowledge of client

C. Referral fees

• OK if disclosed all possible, outside impacts
• disclose to clients any consideration or benefit received or delivered to others for the recommendation
• to allow clients to evaluate any partiality shown in making referrals

VII. Responsibilities of CFA member

A. Conduct as members

• misrepresentation forbidden
• cheating on any examination prohibited

B. Avoid misrepresentation of CFA

• citing an expected completion date->violation

Global Investment Performance Standards

• apply to investment management firms and serve their existing and prospective clients
• created to reduce ambiguity of performance reporting among investment firms
• verification process encouraged, but not required, to make a specific verification disclosure
• firms cannot alter historical performance records of composites simply because of a reorganization of the firm
• does not cover the professional qualifications for managing assets at a firm claiming compliance
• 8 Major sections

1. Fundamentals of compliance
2. Input data - consistency
3. Calculation methodology - uniformity
4. Composite construction - asset-weighted, groups of portfolios that represent a similar investment strategy
5. Disclosures
6. Presentation & reporting - GIPS compliant
7. Real estate
8. Private equity

• requirement to supply GIPS compliant history for minimum of 5 years or since inception if in existence for less than 5 years
• firm must add annual performance upto 10 years minimum
• include all fee-paying, but not non-fee-paying accounts in composites
• apply on a firm-wide basis
• document in writing the policies and procedures used for compliance
• specifically define what constitutes the firm that is claiming compliance
• follow local law and disclose the conflict between local law and GIPS
• total firm assets must include all accounts