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Ethics
Set of moral principles. Conduct governing individual or group
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Culture of Integrity (4)
- 1. High Standards in writing
- 2. Ongoing training on standards
- 3. Assess integrity of groups you work with
- 4. Take action when there are breaches
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Ethical Dilemmas
Situations in which values, interests, rules are potentially in conflict
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Obligations to Clients (4)
Clients interests should come before firm's and individual's interests
- 1. Requisite knowledge & skills
- 2. Managing risks
- 3. Safeguarding client info
- 4. Treating clients fairly, consistently
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Churning
Excessively trading assets in a client's portfolio to earn higher trading commissions.
CONFLICT OF INTEREST
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Front Running
Broker executes personal buy order before executing a large client buy order to reap benefit of higher market prices caused by client's order.
CONFLICT OF INTEREST
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Obligations to Employers (4)
- 1. Provide services as agreed in contract
- 2. Follow supervisory directives as required
- 3. Professional conduct
- 4. Loyalty, competence, care
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Loyalty
Work diligently, place employer interests above self-interest, not misappropriate company property (including client lists, models, etc.)
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Supervisor Expectations
Ensuring compliance with ethical, legal, professional, organizational standards
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Laws/regulations are not enough (4)
- 1. May not cover all areas of finance. May be vague, ambiguous
- 2. Slow to catch up with market innovation
- 3. Inconsistencies across borders
- 4. Situations exist where no law exists
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CFA Code of Ethics - Guideline for Investment Professionals
CFA & CIPM candidates must comply with Code & Standards of CFA regardless of what country they are in.
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CFA Standards of Professional Conduct (7)
- 1. Client interests are paramount
- 2. Diligence, Care, Prudent Judgement
- 3. Act with independence & objectivity
- 4. Avoid/disclose conflicts of interest
- 5. Full/fair disclosure
- 6. Fair dealing
- 7. Protect confidential info
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Ethics matter because Trust is Essential
Trust creates liquidity, profitability & efficiency as trust leads to more market participants, more access to equity/debt which increases liquidity and reduces costs.
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Framework for Ethical Decision Making (8)
- 1. Identify issue & duties/obligations
- 2. Identify conflicts
- 3. Get facts
- 4. Identify ethical principals involved
- 5. Identify factors that could affect judgement
- 6. Evaluate alternative actions
- 7. Seek additional guidance
- 8. Act & review the outcome
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In the absence of clear rules, _______ can help guide decision making & behaviors
Ethics
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