Standard VI (A) - Disclosure of Conflicts

Examples of Violation

• Example 1: An analyst has to write a research report about a company. The analyst’s firm actually has a special interest in the company being researched as the firm has business relationship with the company. This is a conflict of business interest; therefore, the analyst must disclose in his research report their special relationship with the company.
• Example 2: An analyst inherits a huge amount of stocks in a company from his relatives. At the same time, he has published a report with a buy recommendation for the same stock. Even if the analyst’s recommendation is fair, it’s a conflict of interest, and he must disclose his ownership of the stock.
• Example 3: An investment firm has recently linked the performance of its portfolio managers with peer performance and benchmark indices. Given this change, a portfolio manager in an attempt to improve his portfolio performance deviates from his fund’s objectives and starts investing in high-risk stocks. He does not disclose this to his clients the new compensation structure, which has created a conflict of interest. This is a violation of the standard.
• Example 4: An investment analyst has recently invested in a few foreign notes. Later he recommends his firm to invest in the same bond without disclosing his personal ownership of the notes. This is a violation of the standard.