Ethical and Professional Standards Paper 1


Recommended procedures to comply with the Standard concerning priority of transactions are least likely to include:


Juan Perez, CFA, is a research analyst for a large Wall Street brokerage firm where he follows the pharmaceuticals industry. While a large pharmaceuticals convention is in town, Perez happens to be in a restaurant where several analysts he has never met before are discussing their investment recommendations. Perez overhears the analysts agree that PharmCo, Inc. is a strong “Buy,” but cannot hear the details of why they are recommending purchasing stock in the company. The next day, Perez changes his “Sell” recommendation on PharmCo to “Buy,” based solely on the conversation he overheard between the analysts the night before. Perez most likely violated the Standard concerning:


Allen Winkler, CFA, an equity analyst, recently had lunch with his former professor, Kim Thompson. Thompson told him about a new theoretical stock valuation model she designed. Upon returning to his office, Winkler recreated Thompson’s model and revised it slightly. He then tested the revised model using historical stock prices from Standard & Poor’s (S&P) equity databases. The results were so impressive that his supervisors decided to create a small new fund called the Technical Fund directed toward their technically oriented clients. In the fund’s prospectus, Winkler included a discussion of the model and the results of his tests. According to the Standard on misrepresentation, is Winkler required to credit Thompson for having developed the original model and S&P as the source of the data?


Fran Lester, CFA, lives in a country that permits equity brokers receive shares in oversubscribed IPOs only with their employer’s permission. She works as a broker for a firm doing business country, which does not require brokers to get such permission IPOs. If Lester’s firm is distributing shares of an oversubscribed her firm’s country, can Lester receive shares in the IPO?


Diane Harris, a CFA Institute member, is a portfolio manager Worldwide Investments. Robert Cline, one of her clients, her the use of his condominium in Aspen for one week in if the performance of his portfolio is at least two percentage above that of the S&P 500 during the next 12 months. Immediately after learning about the offer, Harris informed her manager terms of this agreement in writing and received verbal consent the arrangement. At the end of the year, Harris met the performance criteria set by Cline and accepted the vacation. Did Harris Standard concerning additional compensation arrangements?


Stan White, CFA, heads the marketing department of a large brokerage firm, American Securities. He reports directly to the president of the firm, who has mandated that beginning this year, the firm must present all past performance results in accordance with the Global Investment Performance Standards. Which of the following statements is an acceptable indication of American Securities’ compliance with the Global Investment Performance Standards?


Six months ago, Tom Hayes, CFA, left his position as a portfolio manager and accepted a position as senior portfolio manager at a smaller boutique firm. One of Hayes’s first recommendations at his new job is Selldex. He had researched and recommended the stock six months ago while employed at his old firm, and he still believes it has great investment potential. He recreates his Selldex research using information from public sources and makes the recommendation. According to the CFA Institute Standards of Practice, Hayes’s actions:


The CFA Institute Code of Ethics most likely requires members and candidates to:


Craig Boone, a Level I CFA candidate, is a trader on the fixed income desk at a large financial institution. He has observed that one of salesmen on the desk has been reallocating some trades at the end of the day, giving better execution to a large client at the expense of several smaller clients, a practice Boone suspects is illegal. The salesman tells Boone this is a common practice and that the firm’s senior management is aware of it. If Boone makes a personal record of the activity, takes it home for his personal files, and subsequently reveals it to regulatory authorities, he would:


WEB, an investment-banking firm, is the principal underwriter for MTEX’s upcoming debenture issue. Lynn Black, CFA, is an analyst with WEB, and she learned from an employee in MTEX’s programming department that a serious problem was recently discovered in the software program of its major new product line. Infect, the problem is so bad that many customers have canceled their orders with MTEX. Black checked the debenture’s prospectus and found no mention of this development. The red herring prospectus already been distributed. According to the CFA Institute Standards Professional Conduct, Black’s best course of action is to:


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