Page 16 - FINAL CFA II SLIDES JUNE 2019 DAY 1

READINGS 1 AND 2: CFA INSTITUTE CODE OF ETHICS AND STANDARDS OF
MODULE 2.1: STANDARDS I(A) AND I(B) PROFESSIONAL CONDUCT GUIDANCE FOR STANDARDS I–VII

I. PROFESSIONALISM

B. Independence and Objectivity

External influences: Modest gifts please –especially look out for gifts from entities seeking influence to the detriment of the client. Gifts must be disclosed
to the member’s employer in any case, either prior to acceptance if possible, or subsequently. Allocation of shares in oversubscribed IPOs to personal
accounts is NOT permitted.

Investment Banking Relationships: Erect effective “firewalls” between research/investment management and investment banking activities. Avoid
pressures by sell-side firms to issue favorable research on current or prospective investment-banking clients.

Public Companies: Do not be pressured to issue favorable research by the companies you follow. Do not confine research to discussions with company
management, but rather use a variety of sources, including suppliers, customers, and competitors.
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Buy-Side Clients: They may try to pressure sell-side analysts. As Portfolio manager, you may have large positions in a particular security, and a rating
downgrade may have an effect on the portfolio performance. You must respect and foster intellectual honesty of sell-side research.

Fund Manager and Custodial Relationships: If you are responsible for selecting outside managers, do not accept gifts, entertainment, or travel that might
be perceived as impairing their objectivity.

Performance Measurement and Attribution: Performance analysts may experience pressure from investment managers who have produced poor results
or acted outside their mandate. Do not let such influences affect your analysis.

Manager Selection: Do not accept gifts or other compensation that could be seen as influencing your hiring decisions, nor should you offer compensation
when seeking to be hired as an investment managers.
Credit Rating Agencies: If employed here, make sure that procedures prevent undue influence by the firm issuing the securities. If using credit ratings
beware of this potential conflict of interest and consider whether independent analysis is warranted.

Issuer-Paid Research: Analysts’ compensation for preparing such research should be limited, and the preference is for a flat fee, without regard to
conclusions or the report’s recommendations.

Travel: Best practice is for analysts to pay for own commercial travel when attending information events or tours sponsored by the firm being analyzed.