Standards of Practice Handbook NINTH EDITION

Standards of Practice Handbook NINTH EDITION

Preface . v
CFA Institute Code of Ethics and
Standards of Professional Conduct . 1
Standard I: Professionalism
A. Knowledge of the Law 7
B. Independence and Objectivity . 15
C. Misrepresentation . 25
D. Misconduct 33
Standard II: Integrity of Capital Markets
A. Material Nonpublic Information . 37
B. Market Manipulation 49
Standard III: Duties to Clients
A. Loyalty, Prudence, and Care 53
B. Fair Dealing. . 61
C. Suitability. . 69
D. Performance Presentation. 75
E. Preservation of Confidentiality. 79
Standard IV: Duties to Employers
A. Loyalty. . 83
B. Additional Compensation Arrangements 91
C. Responsibilities of Supervisors . 93
Standard V: Investment Analysis, Recommendations, and Actions
A. Diligence and Reasonable Basis 99
B. Communication with Clients and Prospective Clients . 105
C. Record Retention 111
Standard VI: Conflicts of Interest
A. Disclosure of Conflicts 113
B. Priority of Transactions. . 121
C. Referral Fees 127
Standard VII: Responsibilities as a CFA Institute Member or CFA Candidate
A. Conduct as Members and Candidates in the CFA Program. 131
B. Reference to CFA Institute, the CFA Designation, and the
CFA Program . 135
CFA Institute Standards of Practice Exam. 143
Index 159

It is critical that research analysts adhere to strict standards of conduct that
overn how the research is to be conducted and what disclosures must be made
the report. Analysts must engage in thorough, independent, and unbiased
nalysis and must fully disclose potential conflicts, including the nature of their
ompensation. Otherwise, analysts risk misleading investors by becoming an
xtension of an issuer’s public relations department while appearing to produce
ndependent” analysis.
Investors need clear, credible, and thorough information about companies
nd research based on independent thought. At a minimum, research should
clude a thorough analysis of the company’s financial statements based on
ublicly disclosed information, benchmarking within a peer group, and industry
nalysis. Analysts must exercise diligence, independence, and thoroughness in
onducting their research in an objective manner. Analysts must distinguish
etween fact and opinion in their reports. Conclusions must have a reasonable
nd adequate basis, and must be supported by appropriate research.
Analysts must also strictly limit the type of compensation that they accept for
onducting research. Otherwise, the content and conclusions of the reports could
asonably be expected to be determined or affected by compensation from the
onsoring companies. This compensation can be as direct, such as payment based