Let the notes begin:

25 to 32: Professionalism – Standard 1(B) Independence & Objectivity

• Don’t give biased advice, don’t take gifts that might bias your advice

• Buy-side clients shouldn’t pressure sell-side into release positive research

reports about position they hold

• Firewall can be a prohibition of communication between two business functions

to prevent a conflict of interest, typically research vs investment banking

• Analysts performing performance analysis should ignore external influences that

might create bias. Even if they fear the company they analyze will shut them off
from communication for an unfavorable review.

• Managers shouldn’t offer gifts to a potential allocator (to try to influence their
allocation decision)

• Issuer paid research: paid contract work to do analysis of the company. They
should take a flat fee that is not dependent on report findings and disclosures
should be made in their report about compensation source.

• Recommended Procedures for compliance include: creation of a restricted list,

i.e. research companies that refuse to be objectively critical, adoption of a
formal policy of objectivity, an oversight officer.

• Investments should be disclosed, prior approval should be saught before

purchases, IPOs etc

41 to 56: Professionalism – Misrepresentation I(C)

• Trust is the foundation of the investment profession

• Dont overstate performance or qualifications or omit (e.g. cherry picking)

• No Guarantees of performance

• Global Investment Performance Standards (GIPS)

59 to 67: Integrity of Capital Markets – Material Nonpublic Information II(A)

• Not fair if markets are “rigged” in favour of the insider, erodes confidence and
makes markets less efficient

• Material Information: would it have an affect on price or investment decision of

the public

• Nonpublic: anything that has not been made known to the public, i.e. web/press
release
 • inside information is ok for Due Diligence, not ok for trading

• Mosaic Theory: if part of a larger compilation of information then some

nonmaterial nonpublic information can be included in an analyst report provided
the sources are disclosed

• social media releases might not be considered public

• Firewalls: controlling internal information and seeking approval from legal before
passing it to people that might pass on the information inappropriately. Should
be no overlap of key duties that might cause an issue.

o Compliance department to determine if something can go “over the wall”

• its no appropriate for a market maker to immediately cease to make a market for
a stock it gets some insider info for because it could be a signal to the rest of the
market, however for traders, eg, arbitrage traders, they should stop trading
immediately if they get some non-public info

• the act of distributing non-public info is a violation, it doesn’t matter if it is acted

upon or not

74 to 76: Integrity of Capital Markets – Market Manipulation II(B)

• Manipulation: Reduce fairness, trust, investor participation, efficiency: includes

false info, rumors, and transactions that deliberately distort price

• “pump n dump”: pump up price with false info then dump once price is higher

82 to 93: Duties to Clients – III (A) – Loyalty Prudence & Care III(A)

• Client interests are paramount, Show care

• i.d. the client as the ultimate beneficiary

• if manager uses broker with higher commissions for the soft dollars there is a
violation

• directed brokerage: when client wants a service or good, they request their
commission dollars pay for it.

• consider the client, diversify, do reviews, disclosures of conflicts and

compensation, equal client treatment, confidentiality, best execution, client
interests first

93 to 109: Duties to Clients – Fair Dealing III(B)

 • dont favour clients in a way that is unfair to other clients (some clients can have
preferential treatment based on fees etc, but otherwise should be equitable).

• all clients should be given fair opportunity to act on every recommendation, i.e.
timing and methods of communication

• client interests must come before their own or their families, e.g. if
oversubscribed ipo, client allocations must be done first in round lots

• new or changed recommendations sometimes done by “flash” report which is a

short written report that is intended to be a quick release

125 to 130: Duties to Employers – Loyalty IV(A)

• should abstain from competitive behaviour with employer

• when about to quit, still act in employers best interest regarding services
rendered to the company but also company info, client info, etc

• whistle-blowing: employers interests are subordinate to the client and the

market integrity, you need to report violations if it hurts the clients or the markets

139 to 143: Duties to Employers – Additional Compensation Arrangements IV(B)

• don’t accept gifts from third parties unless permissionis granted by the employer

143 to 155: Duties of Employers – Responsibilities of Supervisors IV(C)

• as a supervisor you need to ensure those beneath you follow laws, regs, codes
standards

• this may require a system if the company is large, includes detection; if done and
regularly reviewed then may not be in violation

• supervisor should identify where violations are likely and have procedures to
handle this

• ensure incentives encourage ethical behaviour

155 to 160: Investment Analysis, Recommendations &Actions – Diligence &

Reasonable Basis V(A)

• exercise diligence, independence and thoroughness

• have reasonable rationale for recommendations

• check 3rd party sources for correctness

• policy about depth of testing, quant methods etc

185 to 188: Conflicts of Interest – Disclosure of Conflicts VI(A)

 • disclose anything that could effect Independence, objectivity, otherwise impair

• clear bold disclosures

• bonuses are common sources of conflict

• best not to trade, appearance alone can be enough, relative at another firm etc

• conflicts as a director: nonpublic info, bond vs shareholder conflict, share

options as bonuses

195 to 200: Conflicts of Interest – Priority of Transactions VI(B)

• client and employer transactions take priority over your own

• personal trades are allowed as long as they dont disadvantage the client, you
dont benefit from clients trades, its permissible in the regulations

• ipos and vc can be given as gifts, which could be an issue if they influence/bias

• blackout/restricted periods: times when no trading is allowed for managers to

prevent front running etc.

• should send duplicates of personal trade statements to employer, and provide

details of planned trades

203 to 204: Conflicts of Interest – Referral fees VI (C)

• must disclose benefit received for customer referrals as payee or payer

• includes any and all kinds of benefits, monetary or otherwise