- Seven Standards of Professional Conduct
- Standard I (A) Professionalism - Knowledge of the Law
- Standard I (B) Professionalism - Independence and Objectivity
- Standard I (C) Professionalism - Misrepresentation
- Standard I (D) Professionalism - Misconduct
- Standard II (A) - Material Non-public Information
- Standard II (B) - Market Manipulation
- Standard III (A) - Loyalty, Prudence, and Care
- Standard III (B) - Fair Dealing
- Standard III (C) - Suitability
- Standard III (D) - Performance Presentation
- Standard III (E) - Preservation of Confidentiality
- Standard IV (A) - Loyalty
- Standard IV (B) - Additional Compensation Arrangements
- Standard IV (C) - Responsibilities of Supervisors
- Standard V (A) - Diligence and Reasonable Basis
- Standard V (B) - Communication with Clients and Prospective Clients
- Standard V (C) - Record Retention
- Standard VI (A) - Disclosure of Conflicts
- Standard VI (B) - Priority of Transactions
- Standard VI (C) - Referral Fees
- Guidance for Standard VII – Responsibilities of a CFA Institute Member or CFA Candidate
Standard II (B) - Market Manipulation
As per this standard, the Members and Candidates must not engage in practices that distort prices or artificially inflate trading volume with the intent to mislead market participants.
The market manipulation could be information-based or transaction-based.
Information-based manipulation refers to the situation where an analyst may spread false/misleading information that could propel trading. For example, an analyst may provide an exaggerated positive recommendation for a stock, which may lead to a hike in its price. The intention behind this could be to sell the stocks when the prices have jumped high.
Transaction-based manipulation could occur when a CFA member/candidate’s activities could artificially impact the price/volume of an asset to draw public’s attention. For example, an institutional investor with multiple accounts could trade in a stock to increase the trading volume significantly. Another transaction-based manipulation could be where the manipulator takes a dominant, controlling position in an asset so that he could exploit a derivative product.
Both information-based and transaction-based manipulations are a violation of Standard II (B).
The following statements are a violation of Standard II (B), Market Manipulation
- Overstating the earnings projection to help increase stock price.
- Securing a controlling interest in an equity security in order to influence the price of a related derivative instrument.
- Spreading false rumour about a firm to encourage trading by others
- Disseminating misleading information about the development of new products and technologies.
- Buying and selling a large number of shares from a friend on exchange floor at a price 10% above last trade.
The following statements are not a violation of Standard II (B).
- Implementing a trading strategy to exploit differences in market power and information.
- Selling a security and immediately purchasing a similar security in order to minimize income tax liability.
- Engaging in order splitting to limit the effect on the price of a thinly traded security.
- Exploiting differences in market inefficiencies.