CFA Notes - Ethics I

Note

I. Professionalism

（1）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 assocication governing their professional activities.

In the event of conflict, Members and Candidates must comply with the more strict law, ruel, or regulation. Members and Candidates must now knowingly participate or assist in and must dissociate from any violation of such laws, rules, or regulation.

（2）Independence and Objectivity

Members and Candidates must use reasonable care and judgment to achieve and maintain independence and objectivity in their professional activities.

Members and Candidates must not offer, solicit, or accept any gift, benefit, compensation, or consideration that reasonably could be expected to compromise their own or another's independence and objectivity.

（3）Misrepresentation

Members and Candidates must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities.

A misrepresentation is any untrue statement or omission of a fact or any statement that is otherwise or misleading.

（4）Misconduct

Members and Candidates must not engage in any professional conduct involving dishonesty, fraud, or deceit or commit any act that reflects adversely on their professional reputation, integrity, or competence.

II. Duites to Clients

（1）Loyalty, Prudence and Care

Members and Candidates have a duty of loyalty to their clients and must act with reasonable care and exercise prudent judgment. Members and Candidates must act for the benefits of their clients and place their client's interests before their employer's or their own interests.

（2）Fair Dealing

Members and Candidates must deal fairly and objectively with all clients when providing investment analysis, making investment recommendations, taking investment action, or engaging in other professional activities.

（4）Suitability

i.

When Members and Candidates are in advisory relationship with a client, they must：

1. Make a reasonable inquiry into a client's or prospective client's investment experience, risk and return objectives and financial constraints prior to making any investment recommendation or taking investment action and reassess and update this information regularly；
2. Determine that an investment is suitable to the client's financial situation and consistent with written objectives, mandates and constraints（IPS） before making an investment recommendation or taking investment action；
3. Judge the suitability of investments in the content of the client's total portfolio.

ii.

When Members and Candidates are responsible for managing a portfolio to a specific mandate（特别的要求）, strategy, or style, they must make only investment recommendations or take only investment actions that are consistent with the stated objectives and constraints of the portfolio.

（4）Performance Presentation

When communicating investment performance information, Members and Candidates must take reasonable efforts to ensue that it is fair, accurate and complete.

1. Do not misrepresent past performance；
2. Provide complete performance information: no cherry-picking, including liquidated/ terminated accounts；
3. Do not state or imply that clients will obtain a return that was generated in the past；
4. Do not make return guarantee on volatile investment

（5）Preseravation of Confidence

Members and Candidates must keep information about current, former and prospective clients confidential unless:

1. The information concers illegal activities on the part of the client；
2. Disclosure if required by law；
3. The client or prospective client permits disclosure of the information

Exception:

1. Members and Candidates may provide confidential information to CFA Institute for an investigation under Professional Conduct Program.
2. If applicable law requires to maintain confidentiality, Members and Candidates should not disclosure a client's information, even if the information concerns illegal activities of the client.

III. Integrity of Capital Market

（1）Material Non-public Information

i. Definition

Members and Candidates who possess material non-public information that could affect the value of an investment must not act or cause others to act on the information.

ii. What is "material"

The inforamtion is "material" if:

1. Its disclosure would have an impact on the price of a security；
2. Investors would want to know the information before making an investment decision；
3. The source of the information is reliable

iii. Example

1. Earnings；
2. Merger & Acquistions；
3. Innovate products；
4. Changes in management；
5. Legal disputes, etc

iv. What is "non-public"

1. Information is "non-public" until it has been disseminate to the marketplace in general；
2. Information that is made available to a select group of people remains non-public.

（2）Market Manipulation

i. Definition

Members and Candidates must not engage in practices that distort prices or artifically inflate trading volume with the intent to mislead market participants.

ii. Classification

1. Inforamton based；
2. Transcation based

IV. Duties to Employers

（1）Loyalty

In matters related to their employment, Members and Candidates must act for the benefit of their employer and not deprive their employer of the advantage of their skills and abilities, divulge confidential information, or otherwise cause harm to their employer.

（2）Additional Compensation Arrangements

Members and Candidates must not accept gifts, benefits, compensation, or consideration that competes with or might reasonably be expected to create a conflict of interest with their employer's interest unless they obtain written consent from all parties involved.

（3）Responsibilities of Supervisors

Members and Candidates must make reasonable efforts to ensue that anyone subject to their supervision or authority complies with applicable laws, rules, regulations, and the Code and Standards.

（V）

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