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Question of the Week - Ethical and Professional Standards

AdaptPrepAdaptPrep Des Moines, IA, USAPosts: 211 Sr Associate
edited December 2014 in Level 1 Questions
Asmita Mack, CFA, lives in the country of Onionland. Each morning, Asmita crosses the border to the neighboring country of WDC where she manages client portfolios. This morning, a positive earnings report was announced for HawkBlack, Inc. (ticker KANE). Asmita would like to invest in the stock and believes it would benefit her clients as well. WDC has a law that restricts portfolio managers from investing in securities owned by their clients. Onionland has no such law. To comply with the Standard, what is the minimum that Asmita must do?

Question of the Week - Ethical and Professional Standards 45 votes

Not invest personally in KANE
88%
AdaptPrepRoyDwm247rsparksjmsatchwellnitinnmaczRandallK27LollypollykrishTaTeemoCFAAFCshannondailybhalb691ThomasWSlavthendry7pranshJakeconomicsroverfanclub 40 votes
Purchase KANE for her client's portfolio before her personal portfolio
11%
maboi_1daaris.vartonVixensophiamullerecoffey123 5 votes
Purchase KANE for both portfolios simultaneously
0%

Comments

  • shannondailyshannondaily St. Louis, MOPosts: 72 Sr Associate
    Not invest personally in KANE
    Woo! I got it right. :smile: 
  • AdaptPrepAdaptPrep Des Moines, IA, USAPosts: 211 Sr Associate
    Not invest personally in KANE

    There are two potential code issues here:

    Priority of Transactions and Investment transactions. Investment transactions for clients and employers must have priority over investment transactions in which a Member or Candidate is the beneficial owner.

    According to this line, Asmita must purchase KANE for her clients before purchasing it for herself.

    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 association governing their professional activities. In the event of conflict, Members and Candidates must comply with the more strict law, rule, or regulation. Members and Candidates must not knowingly participate or assist in and must dissociate from any violation of such laws, rules, or regulations.

    The law says that Asmita cannot own KANE if her clients do. Because there are different requirements, Asmita must follow the stricter practice and not invest personally in KANE.

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