Gaukhar Malik

4th course
Minor: Financial Analytics CFA. Ethical and professional standards

Final Assignment
Part А.
Answer 10 questions. There is only one correct answer.
Question 1. (1 point)
Relationship between the Code and the Standards and applicable law. If an expert works in a
country where the legal framework for the securities market is not developed or there is no
regulatory framework, then the expert in the performance of his duties must:
А. first of all, follow the rules of local legislation.
B. the most restrictive/strict rules between the Code/Standards and local laws.
C. comply only with what is prescribed in the Code of Ethics and Professional Standards despite
local regulation.
The answer is B
Question 2. (1 point)
When disseminating information through social networks, stock market participants must adhere to:
А. the same criteria and rules as distribution through standard forms of information transfer (for
example: e-mail).
B. social networks are a new form of communication with customers, so there is no regulation.
C. compliance with the rules developed by the social network itself is sufficient.
The answer is A
Question 3. (1 point)
Which of the following is not true of deal/transaction based manipulation:
A. artificially inflated buy or sell volumes.
B. creation of artificial information and its dissemination among market participants to influence the
price of securities.
C. manipulation of the price of a financial instrument for its own purposes by the main holder of this
asset.
The Answer is B
Question 4. (1 point)
When managing client assets, it is necessary to clearly understand who the ultimate beneficiary is.
For which of the following clients there is no clear understanding of who is the ultimate beneficiary:
A. mutual investment fund.
B. pension fund.
C. index fund.
The Answer is C
Question 5. (1 point)
When providing services to clients of an investment company, should the employee restrict or limt
the interests of his relatives/friends?
A. No, unless interests of other customers are not harmed.
B. should not provide services to his relatives/friends due to the affiliation.
C. put the interests of ordinary customers first and only then your friends.
The Answer is A
Question 6. (1 point)
The social media account created by the employee for work purposes after his dismissal remains in
the property of?
A. employer.
B. employee.
C. removed from social networks.
The Answer is A
Question 7. (1 point)
Which of the following actions of a manager in relation to his subordinate who violated the Code of
Ethics or Professional Standards is considered sufficient:
A. verbal reprimand.
B. disciplinary sanction.
C. total restriction of the possibility to repeat the violation in the future.
The Answer is B
Question 8. (1 point)
In the event of an employee leaving the company, can he/she use previously prepared investment
recommendations in a new firm?
A. no, cannot, since the information is the property of the company where it was prepared.
B. yes, he/she can use.
C. it is possible to use if he\she reproduces the relevant documentation and analyze again.
The Answer is A
Question 9. (1 point)
According to the Standards, is it possible to guarantee investment income to a client on investment
products?
А. not allowed.
B. allowed only for fixed income instruments (bonds)
C. allowed only for instruments in case the state or large financial institutions guarantee all
payments
The answer is A
Question 10. (1 point)
Which of the following is a violation of one of the Standards if an employee, working on an
investment recommendation as a team, noticed unethical behavior / actions of his colleagues?
А. Bringing potential violations to higher management. However, after negotiations with
management, he continued to work and issued a joint recommendation.
B. Being aware of the violation, distanced himself from the project, but did not report to the
supervisory authorities, since the actions do not violate the legislation of that country
C. In order not to take part in the issuance of the recommendation, he left the company
The Answer is A

Part B.
Case № 1.
The principal owner of Warwick Business Solutions (WBS) entered into an agreement with two
third party companies to promote and create a positive image among the investor circle for the
shares of this company in exchange for shares and cash considerations. The work of the WBS
consisted of sending and distributing emails, publishing on news websites, and spreading positive
investment recommendations online, all of which encouraged investment in these two companies.
The systematic publication of supposedly independent analyzes and recommendations containing
inaccurate and promotional material and speculative claims was able to attract public investment in
the two companies, which led to a sharp increase in share prices.
Question 1.1. What is the main violation observed in this situation and describe it. (10 points)
Answer:
This case entails manipulative practices related to promoting and creating a positive image for
shares of a company in order to get shares and cash considerations. These practices can be
considered unethical and potentially illegal, depending on the jurisdiction and specific regulations in
place. The principal owner of Warwick Business Solutions (WBS) signed a contract with two
independent parties, which raises the possibility of collusion or a planned scheme to influence the
market. The purpose of the agreement was to promote and create a positive image among investors
for the shares of WBS. This could involve various activities aimed at influencing investor sentiment
and attracting investment. WBS's duties included mailing emails, publishing on news websites, and
disseminating encouraging investing advice online. These actions were probably taken to provide
the impression that the study and suggestions were independent, whereas in fact they were
coordinated and possibly deceptive. Systematic publication of “independent” assessments and
suggestions included speculative statements as well as inaccurate and promotional material,
including speculative claims. Such manipulation attracted public investment in the two companies,
which resulted in a significant increase in share prices.
By these all three parties including principal owner of WBS violated CFA Standard 2 “Integrity of
Capital Markets”. It underscores how crucial it is to keep the capital markets honest and fair. Market
manipulation is obviously against this standard.
Any activity or practice that distorts the market's natural supply and demand factors for one's own
gain or to produce a false sense of market conditions is referred to as manipulation. Various
dishonest tactics that try to affect pricing, volume, or other market indicators can fall under this
category.
It's important to note that such practices are generally considered illegal and can be subject to
penalties and regulatory actions. Market manipulation undermines market integrity, fairness, and
investor confidence. Regulatory authorities and organizations are responsible for investigating and
acting against such manipulative activities to protect investors and maintain the integrity of the
financial markets.
Question 1.2. Imagine that you are an employee of the WBS company and learn about this
situation. Schedule your actions in accordance with the Code of Ethics and Professional
Standards. (15 points).
Answer:
As an employee of WBS who has discovered the described situation, it is essential to adhere to the
CFA Institute Code of Ethics and Professional Standards. Here is a suggested plan of action in
accordance with these standards:
1. Record the information: Record every detail about the unethical scenario, including dates,
communications, and any relevant supporting information or documentation. This will make
it easier to keep a detailed record of what happened and make the inquiry process faster.
2. Maintain confidentiality. Keep the information with the confidence and attentiveness to
prevent any potential harm to the investigation or the reputations of those involved. Only
divulge the information to employees who have a genuine need to know, such as the
compliance officer or a senior management in charge of handling such situations.
3. Consult the responsible authority: Report the unethical activities to the designated
compliance officer or an appropriate authority within the organization responsible for
addressing such issues. Provide them with a comprehensive and factual account of the
situation, including the evidence gathered. Seek guidance on the next steps to be taken.
4. Cooperate with internal investigation: Offer your full cooperation to the individuals
conducting the internal investigation. This includes providing any additional information or
supporting evidence you may possess.
 5. Comply with legal and regulatory requirements: Ensure compliance with all applicable laws
and regulations during the investigation process. Cooperate with regulatory authorities, if
necessary, and provide them with any requested information or support.
6. Maintaining a high standard of professionalism and integrity is important throughout the
process. Retaliatory or unprofessional behavior should be avoided. Promote the integrity and
reputation of the profession by acting in accordance with the ethical standards anticipated of
financial professionals
Case № 2.
Fierra Financial is a broker/dealer that has historically sold mutual funds and insurance products to
individual investors. In 2021, the firm also began selling private placements to clients. Christopher,
Fierra's vice president, is responsible for conducting due diligence on corporate placements and
placing them on an approved list, which the company's investment advisors can review on the firm's
internal website. Christopher relies on third party reports to evaluate the attractiveness and safety of
private placements for Fierra clients. Tom is one of Fierra's investment advisors who reviews an
internal list of approved private placements and sells several of these investments to his clients. Tom
decides not to create any promotional material for these corporate placements, and instead relies on
sponsor-created commercial material to distribute to his clients.
Question 2.1. Have you seen violations in the actions of Christopher? What violation could
potentially result from the use of third party reports? (10 points)
According on the information provided, Christopher's activities don't seem to violate any laws. He
is in charge of completing corporate placement due diligence and using third-party research to
assess the allure and security of private placements. It is crucial to remember that the specifics and
caliber of the third-party reports may have an impact on the reliability of Christopher's due diligence
procedure.
The use of third-party reports may be in violation of Standard 1.2 - Independence and Objectivity,
which is related to the use of third-party reports. Christopher needs to make sure the third-party
reports he uses for his due diligence are impartial and unbiased. The independence and objectivity
standard may not have been adequately checked on the reports, which could result in a breach. It is
not explicitly stated that Christopher's actions have violated any ethical standards. However, there is
a potential violation that could arise from the use of third-party reports for due diligence.
If the third-party reports are not adequately vetted for their independence and objectivity, it could
potentially lead to a violation of the independence and objectivity standard. Christopher should
exercise due diligence in selecting reputable sources and critically assessing the reports to ensure
they are unbiased and reliable. Relying solely on third-party reports without considering their
credibility and potential conflicts of interest could compromise the independence and objectivity of
the due diligence process.
It is important for Christopher to fulfill his responsibility to conduct independent and objective due
diligence on private placements, potentially by seeking multiple sources of information and
verifying the accuracy and credibility of the reports used. By doing so, Christopher can mitigate the
risk of violating the independence and objectivity standard.
Question 2.2. Under what circumstances does Christopher avoid violation? What actions
taken by Christopher will help him avoid violations in this situation (15 points)?
Christopher needs to do the following things in order to comply to CFA ethic standards and prevent
violations:
• Conducting research: Christopher should conduct comprehensive due diligence on the corporate
placements he evaluates. This includes analyzing relevant financial information, assessing risks,
and verifying the accuracy and reliability of the information provided in the third-party reports.
• Examine the objectivity and independence of third-party reports: Christopher needs to
thoroughly examine the objectivity and independence of the sources giving the reports. He
should make sure the authors of the reports are reliable, objective, and free from conflicts of
interest that might affect the objectivity of their analysis.
• Use a variety of sources for your research: Christopher should never rely solely on one source.
To cross-verify the authenticity and dependability of the data, Christopher should gather
information from several different independent sources. This promotes a thorough and objective
assessment of the private placements.
• Maintain transparency and keep records: Christopher has to keep detailed records of his due
diligence procedure. This entails documenting the information's sources, evaluations, and any
actions done in response to the results. His dedication to professionalism and responsibility is
demonstrated by the transparency of his paperwork.
• Monitor regulatory requirements: Christopher should be aware of pertinent rules and industry
norms pertaining to private placements. This makes it more likely that his judgments and deeds
will adhere to professional ethics and legal standards.
• Consult with the firm's compliance and legal teams if necessary: Christopher should speak with
the firm's compliance and legal teams if he runs into complicated issues or is unsure about the
moral ramifications of a certain course of action. They can offer direction and guarantee
adherence to internal policies and legal obligations.
By doing these things, Christopher may strengthen his due diligence procedure, retain his objectivity
and independence, and reduce the chance that he will act unethically while assessing and approving
private placements.

Case № 3.
Jonathan McHale is a financial analyst at Blackrock Investment Company. One of his university
friends offered Jonathan to leave Blackrock and get a job in the company where he works. Jonathan
eventually decides to leave his company and move to a friend's company early next year. A few
weeks before leaving, Jonathan announced to his clients with whom he works that he will leave
Blackrock soon. Customers reacted to this news with surprise and asked about the reasons for
leaving. Jonathan replied that he was not sure about the further development of Blackrock under the
current management and that he did not agree with the policy of attracting professional personnel,
and that many other specialists would soon leave the company as well. Some of the clients became
interested in the company that Jonathan is moving. After the termination with the previous
company, Jonathan transferred all contacts in the new company and after waiting one year (the
conditions for not soliciting clients in the contract with Blackrock), he began to open accounts for
clients from Blackrock in his new company.
Question 3.1. Determine who violated the Code of Ethics and Professional Standards. (10 points)
According to the case Jonathan McHale violated Code of ethics by violating several standards:
Standard 3.1 - Loyalty, Prudence, and Care: By accepting a job offer from a friend's company and
electing to quit Blackrock, Jonathan violated his duty of loyalty to his employer. He put his own
interests ahead of his duty to behave in his employer's best advantage.
In violation of Standard 1.3 - Independence and Objectivity, Jonathan let his clients know how he
felt about Blackrock's leadership and strategy. He fell short of upholding the essential independence
and objectivity required of a financial analyst by sharing personal views and potentially influencing
how clients viewed Blackrock.
Standard 4: Standard 4: Employers. In accordance with the norm, Members and Candidates must act
in ways that benefit their employer in matters pertaining to their employment and must not act in a
way that denies them the opportunity to utilize their skills and abilities, discloses proprietary
information, or otherwise harms their company. Jonathan violated his duty of care and loyalty to his
employer by revealing his leaving plans and airing his disapproval of Blackrock's leadership and
policies.
Jonathan's conduct reveals a lack of allegiance, independence, objectivity, and conformity to the
terms of the agreements laid forth by his former company. These offenses disrespect the interests of
clients and employers while undermining the trust and integrity of the financial industry.
Question 3.2. What are the recommended procedures that will prevent the recurrence of a
similar situation in the future? (15 points).
To prevent the recurrence of a similar situation in the future, the following recommended
procedures can be implemented:
Non-Solicitation and Non-Compete Agreements: employers can add non-solicitation and non-
compete terms to employment contracts to prevent employees from approaching clients or doing
business with them for a specific amount of time after leaving the company. By preventing
employees from directly profiting off the clientele of their former firm, this helps safeguard
customer connections.
Enhanced Confidentiality and Data Protection: To stop employees from taking sensitive client
information to their personal devices or new employers, employers should impose stringent
confidentiality policies and data protection procedures. Strong security measures, such as
monitoring systems and databases with restricted access, can assist protect customer information.
Strict enforcement of contractual terms: Employers should enforce contractual terms, such as non-
solicitation agreements, to ensure compliance by employees. Regular reviews of contracts and
monitoring of employee actions can help identify and address any potential breaches.
Employees should get explicit instructions from their employers regarding their ethical duties, such
as loyalty to the company, client confidentiality, and non-solicitation agreements. Employees can be
reminded of these rules and the value of sustaining professional standards through regular training
sessions on professional ethics and behavior.
Exit Interviews and Employee Monitoring: When employees go, conducting thorough departure
interviews can assist in finding any potential violations or conflicts of interest. Monitoring staff
activity, including interactions with clients and other businesspeople, can also aid in spotting any
unethical conduct or breaches of contractual obligations.
Strong Compliance and Supervision Systems: Implementing strong compliance and supervision
systems can assist in keeping an eye on employee activity, spotting any infractions, and taking the
necessary corrective action. To make sure that personnel uphold moral standards and contractual
commitments, this may involve routine audits, internal controls, and monitoring methods.