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.
C. Responsibilities of Supervisors
This standard states that if the members have any supervisory responsibilities, they should fulfill them and make reasonable effort to prevent any violation of laws, rules and standards by anyone under their supervision.
This also means that if the member detects that the firm does not have adequate internal compliance systems in place, they should decline to supervise in writing, until the firm adopts reasonable procedures and systems.
Examples of Violation
- Example 1: An investment manager changes her recommendation for stock from Buy to Sell. Before the recommendation is formally published, she orally discusses her new recommendation with one of the executives accountable to her. The executive immediately acts on the information and sells the stock from his client’s portfolio. This is a violation of law as the investment manager was unable to prevent the actions of her subordinate, who acted on the information even before it was formally released.
- Example 2: An investment manager receives information about a possible stock buy from one of her analysts and without crosschecking the credibility of the information passes the recommendation to her portfolio managers. The investment manager later found out the news underlying the recommendation was not credible and the recommendation wasn’t appropriate.
- Example 3: A trader at a firm indulges in highly risky trading activity for a long time. Even though the risk managers reported the activity, the trader’s supervisor does not take any action to halt the activity.
