Standard IV – Duties to Employers

This standard has three parts:

A. Loyalty

This standard states that the members must always act in favor of their employer, and works towards benefiting their employers. They should not indulge in activity that could harm their employer.

There may be situations where the employee has to act against his employer in order to protect the larger interests of the capital markets. In such cases, any activity that would otherwise violate this standard will be justified.

Examples of Violation

• Example 1: An employee after leaving employment from a firm, uses private information that he had obtained from his previous employer, to contact and solicit clients from the previous firm. This is a violation of the standard. However, if the information used by the employee was publicly available, then it will not be considered violation of law.
• Example 2: An investment analyst prepares an industry research report for his employer, which is not yet published. The analyst then gets another job with another investment firm, and allows the new investment firm to publish the report as theirs. This is a violation as the research was conducted as a part of his previous employment.
• Example 3: An investment manager who has just joined a new firm contacts his clients from the previous firm requesting them to shift their account to his new firm.

B. Additional Compensation Arrangements

This standard states that the members must not accept any gift, benefits or compensation in any form that creates a conflict of interest with their own employers, unless they obtain written consent from all parties involved.

Examples of Violation

• Example 1: An investment manager working for a firm manages several clients. The manager is compensated for hi job by his employer. One of the clients offers the manager a fancy gift if his portfolio does very well. The manager accepts the offer but does not inform his employer about it. This is a violation of the standard.
• Example 2 (Non-violation): An analyst working with an investment firm recently published a buy recommendation for an airlines company. The CEO of the airlines company, after seeing the report, asks the analyst to meet him for dinner, for further discussion. The analyst gains appropriate approvals, and then meets the CEO. After the meeting the analyst provides full details of the meeting and the dinner to his employer. This is not a violation of the standards.