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Ethics
CHAPTER 1 Code of Ethics and Standards of Professional Conduct

DEF Ethical vs. Legal: Ethical behavior is often distinguished from legal conduct by describing Legal behavior
as 'what is required' and Ethical behavior as 'conduct that is morally correct'. Ethical principles go
beyond that which is legally sufficient and encompasses what is the right thing to do.

The Standard tells you 'What to do?'

The Code tells you 'How to do it?'

Technique: IRAC Issue, Rule, Application and Conclusion

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Code of Ethics
1. Act with integrity, competence, diligence, respect and in an ethical manner.
2. Place integrity of investment profession & client above personal interests.
3. Use reasonable care and exercise independent professional judgement when conducting IRA (Investment
Recommendation & Analysis) and engaging in other professional activities.
4. Practice and encourage others to practice in professional and ethical manner.
5. Promote the integrity and viability of the global capital markets for the ultimate benefit of society.
6. Maintain and improve their professional competence and strive to maintain and improve the competence
of other investment professionals.

Standards of Professional Conduct

I PROFESSIONALISM
A. Knowledge of the Law
B. Independence and Objectivity
C. Misrepresentation
D. Misconduct

II INTEGRITY OF CAPITAL MARKETS

A. Material Non-public Information
B. Market Manipulation

III DUTIES TO CLIENTS

A. Loyalty, Prudence and Care
B. Fair Dealing
C. Suitability
D. Performance Presentation
E. Preservation of Confidentiality

IV DUTIES TO EMPLOYERS
A. Loyalty
B. Additional Compensation Arrangements
C. Responsibilities of Supervisors

V INVESTMENT ANALYSIS, RECOMMENDATIONS AND ACTIONS

A. Diligence and Reasonable Basis
B. Communication with Clients and Prospective Clients
C. Record Retention

VI CONFLICTS OF INTEREST
A. Disclosure of Conflicts
B. Priority of Transactions
C. Referral Fees

VII RESPONSIBILITIES AS A CFA INSTITUTE MEMBER or CFA CANDIDATE

A. Conduct as Participants in CFA Institute Programs
B. Reference to CFA Institute, the CFA Designation and the CFA Program

CFA Institute Code & Standards are an example of 'Principle-Based' Standards.

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CHAPTER 2 Guidance for Standards I - VII

Standard I PROFESSIONALISM

A. Knowledge of the Law

1. Comply with laws, rules and regulations that apply to your professional activities and also
comply in which the member resides. In the event of conflict: follow stricter law and
regulations.
2. CFA member must not knowingly participate in any violation of law and must disassociate
themselves from it. The first step should be to attempt to stop the behavior by bringing it
to the attention of the employer through a supervisor or the firm's compliance
department. If this attempt is unsuccessful, then members can step away and
disassociate from the activity. Inaction with continued association may be construed as
knowing participation.
3. Members should document any violations when they disassociate themselves from
prohibited activity.
4. Members must know the laws and regulations relating to their professional activities in all
countries in which they conduct business. During times of changing regulations members
and candidates must remain vigilant in maintaining their knowledge of the requirements
for their professional activities.

B. Independence and Objectivity

1. CFA members must use reasonable care and judgement to maintain independence and
objectivity.
2. Best practice dictates that you reject any offer of gift or entertainment that could be
expected to threaten your independence and objectivity, e.g. lavish functions, favors and
job referrals. When possible prior to accepting 'bonus' or gifts from clients, members must
disclose to their employer such benefits offers by clients. Firms should impose clear value
limits on gifts.

3. Analyst must distinguish between fact and opinion in their reports. (Personal vs. firms)
4. Restrict employee participation in IPOs and private placements. Require pre-approval of
IPO purchases. Allocation of shares in oversubscribed IPOs to personal accounts is NOT
permitted.
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5. If the firm is unwilling to permit dissemination of adverse opinions about a corporate

client, members and candidates should encourage the firm to remove the controversial
company from the research universe and put it on a 'Restricted List', so that the firm
disseminates only factual information about the company.
6. Always use commercial transportation at your expense or at the expense of your firm
rather than accept paid travel arrangements from an outside company. Should
commercial transportation be unavailable, you may accept modestly arranged travel to
participate in appropriate information-gathering events, such as a property tour.
7. Analysts may face pressure to issue credit ratings at a specific level because of other
services the agency offers - namely, advising on the development of structured products.
The rating agencies need to develop the necessary firewalls and protections to allow the
independent operations of their different business lines.
8. Firms should appoint a compliance officer and provide clear procedures for employee
reporting of unethical behavior and violations of applicable regulations.
9. 'Pay-to-Play': Managers looking to gain lucrative allocations from the large funds made
requested donations to the political campaigns of individuals directly responsible for the
hiring decisions. This has led to bans on hiring or hiring delays for managers that made
campaign contributions to representatives associated with the decision-making process.

C. Misrepresentation
1. Member must not knowingly omit or misrepresent information or give a false impression
of a firm, organization or security in the member's or candidate's oral representations,
advertising, electronic communications or written materials.
2. Members must not misrepresent any aspect of their practice including their qualification
or credentials or services provided by the firm, their performance record and record of
their firm & the characteristics of an investment.
3. Members should encourage their firms to develop strict policies for composite
development to prevent 'Cherry Picking' - situations in which selected accounts are
presented as representation of the firm's abilities. The omission of any accounts
appropriate for the defined composite may misrepresent to clients the success of the
managers implementation of its strategy.
4. Guaranteeing a specific return on securities that don't have an explicit guarantee from a
government body or financial institution is prohibited.
5. Must disclose intended use of external managers and must not represent those manager's
investment practices as your own.
6. When communicating through social media channels: members should provide only the
same information they are allowed to distribute to clients and potential clients through
other traditional forms of communication. E.g. Article's webpage should be the same as
the social media.
7. Crediting the source is not important only when it is from recognized financial and
statistical reporting services.
8. Copying verbatim (Plagiarism) any material without acknowledgment including plain-
language descriptions in Wikipedia, Investopedia etc. is a violation. Even though these
concepts are general, best practice is to describe them in your own words and cite the
sources.
9. Must not take credit for the work done by others, but can omit names of the
presenters/colleagues who are no longer working in the company. The firm retains the
right to continue using the work completed after a member or candidate has left the
organization.
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D. Misconduct
1. Not engage in any professional conduct involving dishonesty, fraud, deceit or commit any
act that adversely effects their professional reputation, integrity or competence. Must not
use this standard for personal revenge or issues not related to professional ethics or
competence.
2. Personal bankruptcy may not be a violation, but if the circumstances of the bankruptcy
involve fraud/deceit, the bankruptcy may be a violation.

Standard II INTEGRITY OF CAPITAL MARKETS

A. Material Non-Public Information

1. It is material only if the disclosure would affect the price of the security before making an
investment decision. Must not act or cause others to act on the information. It is not a
violation if you are not aware that the information your receiving is material non-public
information and you trade & pass it on.
2. Mosaic Theory: A financial analyst gathers and interprets large quantities of information
from many sources. The analyst may use significant conclusions derived from the analysis
of public and non-material non-public information as the basis for IRA, even if those
conclusions would have been material inside information, has they been communicated
directly. They should save and document the research.
3. Some social media platforms require membership in specific groups in order to access the
published content. Members participating in groups with membership limitations should
verify that material information obtained from these sources can also be accessed from a
source that would be considered available to the public. Members should also complete all
appropriate regulatory filings related to information distributed through social media
platforms.
4. Members may provide compensation to individuals for their insights without violating this
standard. Members are ultimately responsible for ensuring that they are not requesting or
acting on confidential information received from external experts. However, they may not
act or cause others to act on any material non-public information obtained from these
experts until that information has been publicly disseminated.
5. When a well known analyst issues a report or makes changes to recommendation, it may
have an effect on the market and thus may be considered material. Theoretically, such a
report would have to be made public at the time it was distributed to clients.
6. Issue press releases prior to analyst meetings and conference calls & script those
meetings and calls to decrease the chance that further information will be disclosed. If
material non-public information is disclosed for the first time in an analyst meeting or call,
the company should promptly issue a press release or otherwise make the information
publicly available.
7. Securities should be placed on a restricted list when a firm has or may have material non-
public information. Therefore, an information barrier 'Firewall' is most widely used
approach for preventing the communication of material non-public information within
firms. If sharing such material non-public information is necessary, the compliance officer
should coordinate the process of 'Looking over the Wall' so that the necessary information
will be shared and the integrity of the procedure will be maintained.
8. The restriction and review of a firm's proprietary trading, while the firm possesses
material non-public information will necessarily depend on the types of proprietary
trading in which the firm may engage: (a) If involved in market making, it can continue
trading provided it remains passive i.e. taking the contra-side of unsolicited requests.
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(b) The most prudent course for firms is to suspend arbitrage activity when a security is
placed on the 'Watch List'.

B. Market Manipulation
1. Must not engage in distorting prices or artificially inflate trading volume to mislead the
market participants.
2. Liquidity Pumping Strategy: The exchanges or firms attempt to demonstrate that it has the
best liquidity. It may engage in LPS, but the strategy must be disclosed.

Standard III DUTIES TO CLIENTS

A. Loyalty, Prudence and Care

1. One should inform clients that the advice provided will be limited to the propriety
products of the firm and not include other products available in the market.
2. When the manager is responsible for the portfolios of pension plans or trusts, it's the
client is not the person or entity who hires the manager but rather, the beneficiaries of the
plan or trust. The duty of loyalty is owed to the ultimate beneficiaries.
3. Investment decisions must be judged in the context if the total portfolio rather than by
individual investment within the portfolio.
4. Client Brokerage or Soft Dollars or Soft Commissions must be used to benefit the client. In
addition the member should disclose to the client, that the client may not be getting best
execution from the 'Directed Brokerage'.
5. The members should vote in an informed and responsible manner. They should disclose
to clients their proxy voting policies.
6. If members control client assets, one should:
(a) Submit to each client at least quarterly, an itemized statement showing the
funds/securities in your custody plus all transactions that occurred during the period.
(b) Disclose to the client where the assets are to be maintained as well as where or where
they are moved.
(c) Separate the client's assets from any other party's assets including your own assets.
7. If a member is uncertain about the appropriate course of action with respect to a client, if
in doubt, a member should disclose the questionable matter in writing to the client and
obtain approval from the client.

B. Fair Dealing
1. Treat both individual and institutional clients in a fair and impartial manner (fairly doesn't
mean equally). Disclose the different service levels to all clients.
2. Give all clients a fair opportunity to act upon every recommendation. Shorten the time
frame between decision and dissemination.
3. Clients who are unaware of a change in recommendation should be advised before the
order is accepted.
4. Disclose trade allocation procedures and how procedures would affect the client or
prospect.
5. Members are prohibited from withholding such securities for their own benefit and must
not use such securities as a reward or incentive to gain benefit e.g. holding oversubscribed
IPOs for their own benefit a.k.a. 'Hot Issue' securities.
6. Best practice includes allocating pro-rata on the basis of order size.

C. Suitability
1. Updating the IPS should be reported at least annually and also prior to material changes
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to any specific investment recommendations or decisions on behalf of the client.

2. Members can be responsible for assessing the suitability of an investment only on the
basis of the information and criteria actually provided by the client. Portfolios should be
diversified.
3. In the case of unsolicited trade requests that a member knows are unsuitable for a client,
the member should refrain from making the trade until he/she discusses the concerns
with the client.
4. If the unsolicited request be expected to have a material impact on the portfolio; the
member should update the IPS.
5. You may have clients who decline to modify their IPS while insisting an unsolicited trade
be made. In such instances:
(a) Allow for the trade to be executed in a new unmanaged account.
(b) If this is not possible, you need to determine whether to continue the advisory
arrangement with the client.

D. Performance Presentation
1. Including terminated accounts as part of historical performance and clearly stating when
they were terminated.
2. Maintaining data and records used to calculate the performance being presented.
3. Presenting performance of weighted average composite of similar portfolios rather than a
single account.
4. Members should encourage their firms to comply with the GIPS standards. Claiming
compliance with GIPS while not being fully compliant with GIPS is a violation.
5. Include all appropriate disclosures to fully explain results e.g. model results, including the
gross or net of fees etc.
6. No prohibition as long as member discloses that the results are stimulated and not actual
firm or member performance.
7. No prohibition from showing past performance of funds managed at a prior firm as part of
a performance track record as long as that record is accompanied by appropriate
disclosures about where the performance took place and the person's specific role in
achieving that performance.
8. Modifying a performance attribution methodology without proper notifications to client is
a violation.

E. Preservation of Confidentiality
1. Members must keep information about current, former and prospective clients
confidential unless:
(a) The information concerns illegal activities on the part of the client or prospective
clients.
(b) Disclosure is required by Law or
(c) The client or prospective client permit disclosure of the information.
2. Members should avoid disclosing information received from a client to authorized co-
workers who are also working for the client.
3. Members should follow firm procedures for storage and communication via. electronic
data and recommend adoption of procedures if they are not in place.
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Standard IV DUTIES TO EMPLOYERS

A. Loyalty
1. Members must not engage in any activities which would injure the firm, deprive it of profit
or deprive it of the advantage of employees' skills and abilities. Must consider the effects
of their actions on firm integrity and sustainability.
2. Members are encouraged to give their employer a copy of the code and standards.
3. Independent practice for compensation is allowed if a notification is provided to the
employer fully describing all aspects of the services including compensation, duration and
the nature of the activities and if the employer consents to all terms of the proposed
independent practice before it begins.
4. Whistle Blowing: If an employer is engaged in illegal or unethical activity, it is acceptable
for the employee to violate member's or candidate's duty to his/her employer (such as
contradicting employers instructions, violating certain policies and procedures or
preserving a record by copying employers record) only if the intent is clearly aimed at
protecting clients or the integrity of capital markets.
5. Members must continue to act in their employer's best interests until resignation is
effective. Activities which may constitute a violation:
(a) Misappropriation of trade secrets.
(b) Misuse of confidential information.
(c) Soliciting employer's clients prior to leaving.
(d) Self-dealing.
(e) Misappropriation of clients and client lists.
6. Employers often require employees to sign 'Non-Compete Agreements' that preclude a
departing employee from engaging in certain conduct. This Non-Compete provisions
within employment contracts that essentially require employees refrain from working with
competitors for a certain period of time after the end of the present employment
relationship.
7. Former employer's documents and fees: Except with the consent of their employer,
departing member may not take employees property i.e. books, records, reports and other
materials. Taking any employers' records, even those the member prepared violates the
standards.
8. The standard doesn't prohibit former employees from contacting clients of their previous
firm as long as the contact information does not come from the records of the former
employer. Members are free to use public information after departing, to contact former
clients without violating the standard as long as there is no specific 'Non-Compete
Agreements' not to do so.
9. If an agreement exists among employers (e.g. U.S. Protocol for Broker Recruiting) that
permits brokers to take certain client information when leaving a firm, hence a member
many act within the terms of the agreement without violating the standard. To be
protected, a copy of the information must be provided to the local management team for
review. Additionally, the specific client information may only be used by the departing
employee and not others employed by the firm.
10. When planning to resign, the employee must ensure that their social media use complies
with their employers' policies for notifying clients about employee separations.

B. Additional Compensation Arrangements

1. Members must not accept gifts (monetary and non-monetary), benefits, compensation
(direct and indirect) 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.
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C. Responsibilities of Supervisors
1. Members must make reasonable efforts to prevent employees from violating laws, rules,
regulations or the code and standards as well as make reasonable efforts to detect
violations.
2. A member faced with no compliance procedures or with procedures he believes is
inadequate must decline supervisory responsibility in writing until adequate procedures
are adopted by the firm.
3. If there is a violation, respond promptly and conduct a thorough investigation while
increasing supervision or placing limitations on the wrongdoer's activities.

Standard V INVESTMENT ANALYSIS, RECOMMENDATIONS AND ACTIONS

A. Diligence and Reasonable Basis

1. Have a reasonable and adequate basis supported by appropriate research and
investigation for any analysis. Must consider prior to making a recommendation or taking
investment action includes: macro-conditions, firm's history, financial data, ratios,
calculations, quality of assets and level of fees etc.
2. You can rely on others in your firm to determine whether secondary (advisors with your
firm) or third-party research is sound and use the information in good faith (e.g.
Bloomberg) unless you have reason to question its validity or the processes end
procedures used by those responsible for the research. Criteria on whether research is
sound, include:
(a) Assumptions used,
(b) Rigor of the analysis performed,
(c) Evaluation of the objectivity and independence of the recommendation.
3. Members must be able to explain the basic nature of the quantitative research and how it
is used to make investment decisions. Members should consider scenarios outside those
typically used to assess downside risk and the time horizon of the data used for model
evaluation to ensure that both positive and negative cycle results have been considered.
(Using Quantitative Research)
4. The standard requires greater diligence of members who create and understand
quantitative techniques than of those who use techniques developed by others. A member
who has created a quantitative strategy must test it thoroughly including extreme
scenarios with inputs that fall outside the range of historical data before offering it to
clients. (Developing Quantitative Techniques)
5. Members should make sure their firms have standardized criteria for reviewing these
selected external advisers and managers:
(a) Reviewing the adviser's established code of ethics.
(b) Understanding the adviser's compliance and internal controls.
(c) Assessing the quality of the published return information.
(d) Reviewing the adviser's investment process and adherence to its stated strategy.
6. Even if a member doesn't agree with the independence and objective view of the group, he
doesn't necessarily have to decline to be identified with the report as long as there is a
reasonable and adequate basis.

B. Communication with Clients and Prospective Clients

1. Disclose basic format and general principles of the investment process. Must promptly
disclose any changes that might materially effect those processes.
2. Disclose significant limitations and risks associated with investment processes. E.g.
models, liquidity and capacity.
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3. Use reasonable judgement in identifying factors important to their IRA and please
communicate.
4. Distinguish between fact and opinion in presentation of research reports.
5. There is no obligation to make 'Buy' and 'Sell' recommendations on securities that are
covered in research reports.

C. Record Retention
1. If no other regulatory standards or firm policies are in place, the standard recommends a
7-year minimum holding period of records.
2. A member who changes firm must recreate the analysis documentation supporting her
recommendation using publicly available information or information obtained from the
company and must not rely on memory or materials created at her previous firm.

Standard VI CONFLICTS OF INTEREST

A. Disclosure of Conflicts
1. Members must fully disclose to clients, prospects and their employers all actual and
potential conflicts of interest in order to protect investors and employers. E.g. broker or
dealer-market making activities, board service, actual ownership of stock in companies
that the member recommends or that client hold, any special compensation
arrangements, bonus programs, commissions and incentives should be disclosed. If
member's firm doesn't permit such disclosure, the member should document the request
and may consider disassociating from the activity.

B. Priority of Transactions
1. Establish Blackout or Restricted Periods: Investment personnel involved in the investment
decision-making process should establish blackout period prior to trade for clients so that
managers cannot take advantage of their knowledge of client activity by 'Front-Running'
(trading for one's personal account before trading for client's accounts) client trades.

C. Referral Fees
1. Members must disclose to their employer, clients and prospective clients as appropriate
any compensation, consideration (includes all fees, whether paid in cash, soft dollars or
in-kind) or benefit received from or paid to, other for the recommendation of products or
services. Such disclosures allow clients or employers to evaluate:
(a) Any partiality shown in any recommendation of services.
(b) The full cost of the services.

Standard VII RESPONSIBILITIES AS A CFA INSTITUTE MEMBER OR CFA CANDIDATE

A. Conduct as Participants in a CFA Institute Programs

1. Expressing an Opinion: members are free to disagree and express their disagreement with
CFA Institute on its policies, procedures or any advocacy positions taken by the
organization. When expressing a personal opinion, a candidate is prohibited from
disclosing content-specific information including any actual exam question, subject matter
covered or not covered in the exam. E.g. you can express that an exam was tough or easy.
2. Members who volunteer in the CFA Program may not solicit or reveal information about
questions considered or included on a CFA exam about the grading process or about
scoring of questions.
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B. Reference to CFA Institute, the CFA Designation and the CFA Program
1. Once accepted as CFA Institute Member, the member must satisfy the following
requirements to maintain his/her status:
(a) Remit annually to CFA Institute a CPC Statement.
(b) Pay applicable CFA Institute membership dues on annual basis.
If a CFA Institute Member fails to meet any of the requirements, the individual is no longer
considered an active member.
2. Candidacy in CFA Program: If an individual is registered for CFA Program but declines to sit
for the exam or otherwise, doesn't meet the definition of a candidate as described in CFA
Institute bylaw. Once the person is enrolled to sit for future examination, his/her CFA
Candidacy resumes.
3. CFA candidate must never state or imply that they have partial designation or cite an
expected completion date of any level. If a candidate passes each level of exam in
consecutive years and wants to state that he/she did so, that is not considered a violation,
since its a 'Statement of Fact'.
4. Members must not make promotional promises or guarantee tied to the CFA designation.
Do not:
(a) Over promise individual competence. E.g. superiority.
(b) Over promise investment results in the future. E.g. higher performance, less risk.
5. The CFA logo certification mark must be used only to directly refer to an individual
charterholder or group of charterholders. The appropriate use of the CFA logo is on the
business card or letter head of each individual CFA charterholder. Acceptable: Chartered
Financial Analyst®, CFA® or CFA logo.
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