B1_1
Erstes Buch Kartei 1
Erstes Buch Kartei 1
Set of flashcards Details
| Flashcards | 99 |
|---|---|
| Language | English |
| Category | Biology |
| Level | University |
| Created / Updated | 13.07.2021 / 08.10.2021 |
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The Asset Manager Code (AMC) is specific to Level II. Does it apply to investment firms and or Individuals?
The Asset Manager Code (AMC) applies to investment firms, not individuals
What are the six components to the AMC?
Loyalty to clients
Investment Process and Actions
Trading
Risk Management, Complicance, and Support
Performance and Valuation
Disclosures
What are - related to the six components of AMC - the related six general principles of conduct?
Always act ethically aand professionally
Act in the best interest of the client
Act in an objective and independent manner
Perform actions using skill, competence, and diligence
Communicate accurately with clients on a regular basis
Comply with legal and regulatory requirements regarding capital markets
Demonstrate knowledge of Professional Conduct A: Loyalty to Clients.
A1 Place the clients interests ahead of the firms in all aspects of the relationship - selecting investments, transacting etc.
A2 Maintain client confidentiality. However, there may be exceptions regarding potentially illegal activities occurring in clien accounts, which may need to be reported
A3 Refuse business relationships and gifta that would compromise independence, objectivity, and loyalty to clients (even in appearance). Only items of nominal value may be accepted. The firm may maintain other (signigicant) business relationships with the same client, assuming potential conflicts are mitigated and disclosed.
Demonstrate knowledge of Professional Code B: Investment Process and Actions
B1: Use reasonable care and judgment when managing client assets
B2: Do not manupulate securities prices and volumes to try to mislead market participants, as it damages the integrity of markets to the detriment of all investors
B3: Deal fairly and objectively with all clients when providing information, givind advice and taking actions. Managers may offer higher levels of service to some clients for higher compensation if the service levels are disclosed and available to all clients willing to pay for them. Managers may engage in secondary investment opportunities (that are offered because of other business activities) if the opportunities are fairly allocated to all suitable clients
B4: Have a reasonable and adequate basis for recommendations. Third-Party resarch can be used if reasonable
B5a: For portfolios managed to a specific style or strategy, managers do not have to evaluate the suitability to given client. Managers must provide suitable disclosure so clients can determine if the portfolio is suitable for their needs.
B5b: Material changes to strategies and styles must be provided to clients as far in advance as possible.
B6a: When managing portfolios of a specific client, understand the clients objectives, constraints and any other pertinent information to be able to take suitable investment actions for that client
B6b: Client portfolios should contain only investments that are suitable for those clients.
Demonstrate knowledge of Professional Code C: Trading
C1: Do not acto or cause others to act on material nonpublic information that could affect the value of public securities. However, the use of mosaic theory - material public information and nonmaterial nonpublic information - is acceptable
C2: Managers cannot execute ahead of clients or to the detriment of clients interest
C3: Use client commissions - which belong to the client - only to pay for investment decision making products and services that directly benefit the client not for the management of the firm
C4: Seek best execution for all client trades
C5: Establish policies for fair and equitable trade allocation. All clients for whom the trade is suitable should be given the opportunity to participate.
Demonstrate knowledge of Professional Code D: Risk Management, Complicance, and Support
D1: Develop detailed policies and procedures to comply with the AMC and all legal and regulatory requirements
D2: Appoint a competent, knowledgeable, credible compliance officer with authority to implement the P&Ps
D3: Use an independent third party to verify that information provided to clients is accurate and complete.
D4: Maintain records to document investment actions.
D5: Employ sufficient and qualified staff to meet all AMC requirements. Outsourcing of some tasks is acceptable, but the firm remains ultimately responsible for all outsourced tasks.
D6: Establish a business conitnuity plan.
D7: Establish a firmwide risk management plan to measure and manage the risks taken
Demonstrate knowledge of Professional Code E: Performance and Valuatoin
E1: Present performance data that is fair, accurate, relevant, timely, and complete. Do not misrepresent performance of accounts or the firm
E2: Use fair market prices when available and commonly used valuation methods in other cases.
Demonstrate knowledge of Professional Code F: Disclosures
F1: Have ongoing, timely communication with clients using appropriate methods at the firms discretion
F2: Ensure truthful, accurate, complete, and understandable communication. Use plain language. Determine what to disclose and how
F3: Include any (all) meterial facts regarding the firm, personnel, investments, and the investment process
F4: Disclose the following (individiual items may state that "information is available upon request").
- Any conflict of interest
- Regulatory and disciplinary actions
- Investment process information - strategy, risk factors, lock-up period, derivatives and leverage
- Management fees
- All soft dollar and bundled fees and what is received in return
- Regular and timely client investment performance reporting
- Valuation methods used to make investment decisions
- The P&Ps used for shareholder voting
- Trade allocation policies
- Review and audit results
- Significant personnel and organizational changes
- Risk management process and changes to that process
Marnie Jenkins, CFA, is an asset managerfora financial servicesfirm that has adopted the AMCin managingclient accounts. Jenkins hasaclient whohasrecently been depositing into his account bearer (coupon) bondsissued by GasTech, a natural gas exploration company. Shortlyafter depositing the bonds,theclient begins requesting disbursement of funds from those bonds. Jenkins suspects the client maybe using thefirm in anillegal moneylaundering scheme. Whichof the following items regarding howthefirm should actis mostaccurate?
2. Terillium Traders (Terillium) is a smallstock brokeragefirm that specializes in buying andselling stocks on behalfof client accounts. Severalof Terilliums brokers haverecently beenplacing botha bid and anoffer on the samesecurity about two hours beforethe markets openfor trading. Thatallows their trades to be some of thefirst ones madeafter the markets open.Just before the markets open,the brokers then cancel oneof the ordersin anticipation that the marketwill movein favor of the other order. Which component,if any,of the AMChas mostlikely beenviolated?
3. World Investment Advisers (WIA)is a large salesforce of registered investment representatives, which hasaffiliations with manyfirms that produce investment-related products. Oneof the affiliated firms is a mutual fund companycalled Life Investors (Life), which has a special agreement with WIA in which WIA has identified Life as a preferred product provider in their internal marketing materials to their investment representatives. In return for the preferential treatment by WIA,Life has reimbursed WIAfor the cost of those marketing materials out of the trading commissionsgenerated from the sale of Life mutual funds byWIA sales representatives. Whichof the following statements regarding any violations of the AMCis most accurate?
4. Harriet Fields, an investment adviserspecializing in selling municipal bonds, advertises ontelevision explaining the safety and security of these bonds. The bonds sheis currently selling are limited obligation bonds backed only by the revenue generatedfrom the projects they fund, which include a housing project anda golf course.Fields tells her prospectiveclients that the bondsaresafe, secure, andoffer generousinterest payments. Whichof the following statements is mostaccurate regarding Fieldss actions?
5. Aspart of the AMC,the firm must adoptpolicies that:
6. AndreasViotti, CFA,is a portfolio managerat an investment managementfirm that has adopted the Asset Manager Code (AMC). Heis interested in the IPO of Telstar, Inc. (Telstar). Telstar is expected to have excellent growth prospects; however, due to recent political events, Viotti believes that the stock volatility could be quite high in the first year. He places an order for the Telstar IPO and begins to allocate the IPO shares amonghis clients. Hedivides his clients into two groupsan income-based group and acapital gainsCbased group. The income-based groupof clients is morerisk averse than the capital gainsCbased group, soViotti decides to allocate the IPOshares onlyto his capital gainsCbased groupof clients. Within the capital gainsCbased group of clients, he allocates the shares pro rata based on the size of assets in each account.
DiscussViottis trade allocation method in the context of the requirements of the AMC
Under the AMC,Viotti is required to establish policies for fair and equitable trade allocation. All clients for whomthe IPOis suitable should be given the opportunity to participate. Hence,Viottis action in allocating ahigh-risk IPOonly to thecapital gains groupof clients would beconsistent with the requirements of the AMC.Viotti alsohas a reasonablebasis(e.g., using sizeof assets under management) in allocating the IPOshares amongthecapital gains groupof clients; therefore, it is also consistent with the requirements of the AMC. (LO 1.C)
Demonstrate knowledge of recommendations for Loaytly to Clients
Align manager compensation to avoid conflict with client best interests
Create privacy policy to document how such information is gathered, stored and used
Refuse gifts and entertainment of more than nominal value from service providers and clients
Demonstrate knowledge of recommendations for Investment Process and Action
Ideally, disclose permitted deviations from intent as they occur
If the strategy or style changes significantly allow clients to redeem without unfair penalties
Ideally, establish and update a written investment policy statement IPS for each client at least annually
Ideally, each investment decision will be made in the context of the clients total situation
Demonstrate knowledge of recommendations for Trading
Managers can use procedures such as firewalls between those with reasons to have such information and the rest of the firm.
Develop P&P to monitor and limit personal trading by employees
Some firms have eliminated soft dollars. If used disclose it to clients.
If clients direct trading, advise the clients it may compromise the managers ability to seek best execution and request written confirmation
Group suitable accounts and trade them as a block and allocate partial trades pro rata
Demonstrate knowledge of recommendations for Risk Managment, Compliance and Support
The compliance officer should be independent of the investment and operations personnel
Retain compliance records and documentation of violations and corective actions for at least seven years
Consider outsourcing the creation of a firmwide risk management plan
Demonstrate knowledge of remmendations for Performance and Valuation
Adopt Global Investment Performance Standards (GIPS)
Independent third parties should be responsible for valuations
Demonstrate knowledge of recommendations for Disclosures
Minimum quarterly investment performance reporting within 30 days of quarter end
Regular disclosure of client specific risk information
1. Kendall Asset Managers (KAM) has adopted the CFAAsset Manager Code (AMC).It has branchoffices in several different geographical locations spread out by hundredsof miles and,in someinstances, located in remoteareas. Dueto their remotelocations and smallstaffs, someof KAMsoffices donot havea compliance officer, and brokers workingin thoseoffices have sometimeshadto take on the responsibility of hiring the branch manager. Somebrokers workout of their homes anduse their ownpersonal emailto contact clients. Somebranches only keep records in electronic formfor six years. Becauseeachof the branchoffices is sodifferent, KAMallows its portfolio managersto offer higher levels of serviceto some clients for higher compensation. Thosedetails are provided on KAMs website and marketing brochures
Which of the following actions by KAMis leastlikely a breach of the AMC
2. What is the minimum frequency of investment performance reporting recommended by the AMC?
3. Liz Craig, CFA,is aportfolio managerat Spadina Investment Advisors (Spadina). Anewclient, Desiree Jackson, contacts Spadina to opena separate account andCraig agrees to managethe account, which represents abouta fifth of Jacksons total wealth. During the interview, Jackson appearsunwilling to disclose moredetails than necessary, soCraig decides not to ask about Jacksons allocations and balances of investments held with other asset managers.Craig proposesto Jacksonthat the twohave a conferencecall at the beginning of eachApril and Octoberto review Jacksons IPS. In orderto give Jackson additional confidence, Craig decides to have the portfolio information that she provides to Jackson reviewedon aregular basis for accuracy andcompleteness.Rather than hiring staff, Craig outsources the function to an outside organization. Are Craigs actions regarding Jackson in compliancewith the requirements of the AMC?
4. Ariya Holdings (Ariya)is a full-service asset managementfirm. It has not yet adopted Global Investment Performance Standards (GIPS) andit hassufficiently qualified internal staff to perform valuations of its client accounts. Whenselecting brokers to executeclient trades, Ariya takesinto account various factors when considering the clients best interests, which often meansnot seeking the lowestprice for all trades. Ona regular basis, Ariya discloses information to its clients on managementfees andclient costs, including net-of-fee returns and any unusual expenses. Managementfees are based on primarily the value of assets under management.
Whichof the following actions by Ariya is mostlikely a violation of the AMC?
5.A firms investment strategy for oneof its equity funds has changed from a focus on medium-cap securities to small-cap securities. Allowing the clients of those funds to redeem their investments without undue penaltyis a recommendation that falls most appropriately under whichsection of the AMC?
BondiAsset Management (BAM) began operations several yearsago. Although it has been successful to date, it wouldlike to expandits client base and increase its assets under management.It has a boardof directors in place with both internal and external memberswhohave experience in marketing, accounting, humanresource, andlegal matters. BAMhad adopted the Asset ManagerCodeas a means of demonstratingthatit is placing client interestsfirst. From an operational perspective, BAMs complianceofficer reports to thechief investment officer. Its performance presentation datais in compliance with Standard III(D) of the Standards of Professional Conduct.At any given time, BAMs personnelare often in possession of material, nonpublic information regarding numerous companies.In that regard, althoughall of BAMs senior management hasinstilled a culture of the highest level of ethical conduct amongits employees,there are no mechanismsin place to control personal trading.
Discuss some recommendationsto address the issues raised by BAM?
The complianceofficer currently reports to the chief investmentofficer, which does not provide completeindependence. The complianceofficer should be independent of the investment and operations personnel; therefore,it is recommended that the complianceofficer report to the boardof directors.
It is recommended that BAMadopt GIPS.By doing so,it will help with BAMsgoal of expandingits client base because both prospective andexisting clients would then havea higher degreeof confidence in thereliability of the performance numbers being presented, which increasestrust in the firm. Ultimately, that should lead to attracting moreclients.
In the absenceof controls onpersonal trading, it is recommended that BAMdevelop policies and procedures to monitor and limit personal trading by employees and provide the complianceofficer with employeepersonal transaction and holdings information. Establish a watchlist of companiesin which employees may not personally trade without approval.
What are the theories of regulation?
Public interest theory of regulation = Regulation should benefit society and reduce collateral damage
Private interest theories of regulation= Legislators, businesses and industry groups may protect self-interests through regulation
What are the principles of Securities Economic Regulation?
Regulations = Product of negotiations between government and business
The basics are transparency, fair markets, and use of law by governments to maintain social and economic systems
What is the importance of regulation in some trading strategies?
Increase regulation can be viewed positive or negative.
Negative when itrestricts business activities
Positive when it creates new activities that are less regulated
Qualified opportunity zones = Tax cuts offered to investors for Private equity and real estate investments in certain areas of the US
What are the main regulatory bodies in the US?
Securities and Exchange Commission SEC = Principles-based disclosure requirements
Financial Industry Regulatory Authority FINRA = Is managed by the SEC and oversees broker-dealers
US Commodity Futures Trading Commission CFTC = Oversees commodity derivatives markets
National Futures Association NFA = Self regulation body overseeing futures trading
What are the US main regulatory framewors?
Securities Act of 1933 = Mandates securities including private funds registration with the SEC
Securities Exchange Act of 1934 = regulation for exchanges and broker-dealers
Investment Advisers Act of 1940 = registering and regulating thowse who offer investment advice on securities
Investment Company Act of 1940 = covers companies that invest and trade in securities and whose own securities are publicly traded. This includes mutual funds
Dodd-Frank Act = Protect customers from predatory prectices by financial institutions and disallowing taxpayer funded bailouts for financial firms too big to fail
What are the registration requirements with the state of the SEC for private fund managers who are considered investment advisers?
The registration requirements are usually based on assets under management:
<25m AUM no need to register
25m to 100m AUM registration with the state and if the state does not require registration a registration with the SEC and if the state does not require examinations by the SEC a registration with SEC
>100m AUM and has managed accounts - registration with SEC
>150m AUM and no managed accounts - registration with SEC
What are the two specific situations where one must register as an investment adviser with the SEC?
1. Fund manager operates a registered investment or business development company
2. Non US hedge fund with more than 15 US clients and investors with AUM exceeding 25m SEC registration requirements for non US hedge funds
What are two common SEC registration exemptions?
The adviser advises on venture capital funds
The adviser sdvises on private funds with under 150m in AUM
Being exempt means not having to comply with the reporting and recordkeeping requirements. Instead some of information on Form ADV needs to be provided to the SEC
What are the 12 matters regulated under the Advisory Act?
1. Advisor agreement terms
2. Performance feeds
3. Client solicitation
4. Political contributions
5. Trading practices
6. Advertising
7. Recordkeeping
8. Personal securities reporting
9. Custody
10. Proxy voting
11. Complicance program
12. Gifts and entertainment
What is the ADV Form with the SEC?
Fordm ADV covers both registrationw ith the SEC and the state(s).
Part 1 covers administrative details of the fund and its staff. Part 2 is the disclosure portion to clients and provides a substantial amount of information. An advisers legal obligation includes delivering Form ADV Part 2 to its clients at the beginning, annualy and whenever specific disclosure items change.
What is to be considered with the hedge fund registration in the US?
The level of SEC regulation for alternative investments including hede funds is different than for other investments, as t is presumed that the former are for experienced and wealthy investors who do not require protection. In that regard, regulating alternative investments is focused on oversight activities pertaining to the systemic risks to the economy.
What is and why are private placements often used to sell alternative investments?
SEC registration can be a complicated process and private funds often take advantage of an exemption in the Securities Act and sell investments through private placements.
Private placements allow the sale to any number of accredited investors and up to 35 nonaccredited investors subject to no general advertising.
An accredited investor is defined as an individual hwo has net worth exceeding 1 million excluding the value of the primary residence or anual income of 200k (300k together with spouse) in the current and each of the two preceding years.
What three types of SEC exams exist?
1. Normal periodic inspections = focus on marketing materials and ADV form
2. Cause inspections = arise from specific tips and complaints
3. Sweep inspections = arise because of compliance problem that the SEC has noted in numerous firms
Any violations noted by the SEC may ultimately result in substantial fines and or revocation of registrations.
