CFA Level I Review Notes
⏹Professional Conduct Program
1)**PCP Principles：Fairness of the process to member and candidate,
and maintain the confidentiality of the procedure;
2)Three Designated Office determination：
No disciplinary sanction appropriated、cautionary letter、Discipline （**Accept or Reject for a hearing）
3)**PCP Sanction：Condemnation members’ Peers or Suspension candidate’s Participation;
⏹Ethical and Professional Standard
I）Professionalism
A）Knowledge of the Law:
a.**Comply with most restrict Law ( including Code & Standard)
b.**Disassociate : Seek Legal Opinion (In doubt)—>Report to Supervisor and Compliance Department
—>Resign—>Report to Governmental Authorities was not required
(Unless in some circumstance and required by Law);
c.**Knowingly Participate violate I(A) Knowledge of the Law ;
Unaware Participate violates I (D) Misconduct;
B）Independence & Objective
a.**Issue Paid Rearch——Compensation is allowed and fully disclod
or will violate VI(A) Disclosure of Conflict ,and flat fee is recommended;
b.**Commercial Transportation and Hotel afford by Rearched Company was allowed
(Not Luxury and compromi Independent, P ay for one’s own was recommended)
c.**Oversubscribe IPO was not allowed and will violate VI(B) Priority of Transaction;
d.**Gift must disclo to employer in any ca;
C）Misreprentation
a.Misleading、Guarantee Investment Performance、Plagiarism;
b.**Information from Financial report and Statistical Report need not be cited;
c.**The extend in using Third-Party report need to fully disclo
d.**Make full description for the firm rvice and qualification (recommended);
e.**Require employee to Plagiarism not violate I(C) Misreprentation,
But Violate (D) Misconduct and IV(C) Responsibility of Supervisors;
D）Misconduct
a.Unethical、adverly on Professional Reputation、Integrity and Competence
b.Abu CFA Program to Settle Personal Disputes;
c.**Personal Bankruptcy need not to be disclod and not violate I (D) Misconduct;
d.**Intoxicated don’t violate this standard if away from work (violation if in work)
II）Integrity of Capital Market
A）Material Non-public Information
a.**Not act or cau others act on Material Non-Public Information;
（Such as Caution in Conference Call & Fire Wall between firm’s Department）
b.**Material: Having Impact on Price or Investment Decision;
c.**Selectively Disclosure is not Public Disclosure;
d.**Mosaic Theory: Recommendation on Public Information + Non-material （Such as ambiguous）and
Non-public Information was allowed;
e.**Rating change from rearch department was not non-public information.
B）Market Manipulation
a.Distort Price、 Artificially Inflate Trading Volume and Spreading Fal Rumours;
III）Duties to Client and Prospective Client
A）Loyalty, Prudence, and Care.
a.Place Clients and Employer’s Interest above Personal Interest;
b.**Determine applicable Fiduciary Duty
(**Etc, the Manager of Pension Plan owe the fiduciary duty to the Participate and Beneficiaries,
should not in favour of the pension management.)
(**Violate the Client’s mandate also Violate III (C) Suitability)
c.**Due to cost benefit , only vote proxies in informed and responsible manner;
d.**Soft-dollar arrangement was allowed
(If the extra commission fee was paid reasonably for the rearch and benefit the clients)
B）Fair Dealing
a.**No Discrimination against any client on investment recommendation and action
(No discrimination between Family Accounts and other Accounts、
**Discretionary Client and Recommendation Client)
b.Disclo the premium for rvice and give all client the same opportunity to get the rvice;
c.**Further communication with main client after dismination was allowed;
d.**Confirm with client when received the order adver to recent recommendation;
C）Suitability
a.**Establish Investment Policy Statement (IPS), Updated at least annually;
b.**Distinguish the difference responsibility for suitability between advisory (Point)
And portfolio management (Time Period);
c.**Confirm with client when the investment order was considered not suitable;
D）Performance Prentation
a.Global Investment Performance Standard (GIPS) was recommended
b.Guarantee Performance、State or Imply to achieve return similar to past was not allowed;
c.**III(D) Performance Prentation put more emphasis on the Fair and Accurate and Complete,
and the quality for disclosure was not required in this standard;
d.Maintain the data and record for calculation was recommended.
E）Prervation of Confidentiality
a.**If the information concern illegal activity, ek legal counl before report;
b.Information could be disclod if was allow by client or required by law;
c.**Disclo information to authorized co-workers was allowed;
d.**Providing confidential client information to cooperate with PCP inquiry was allowed;
IV）Duties to Employers
A）Loyalty
a.Independent practice was allowed if fully disclod to employer and get the connt before begin;
b.Misu of Confidential Information、Misappropriate Client List、Soliciting Client、
Self Dealing before resign was not allowed.
B）Additional Compensation Arrangement
a.**Including Gift and Entertainment
b.Make a immediate written report was recommended;
c.Get written connt before get any additional compensation;
C）Responsibility of Supervisors
a.**When no compliance procedures or inadequate procedures,
Decline Supervisory responsibility in writing until adequate procedures was adopted
b.**Main Supervisory Responsibility：Prevent and detect violation;
V）Investment Analysis, Recommendation, and Action
A）Diligence and Reasonable Basis
a.Review Third-Party Report before u
b.**Reasonable Basis
B）Communication with Client and Prospective Client
a.**Disclo the basic format and general principal (no need to reprent a detail model);
b.**Disclo promptly the significant change in related process;
c.**Distinguish between Fact and Opining in prentation;
d.Supply additional information under the requirement was recommended;
C）Record Retention
a.**Maintain all rearch records and supported documentation
(Both Softcopy and Hardcopy were allowed);
b.**Related documentation was recommended by CFA to kept for 7 years ;
VI）Conflict of Interest
A）Disclosure of Conflicts
a.**Fully disclo the events (including potential event in negotiation) have
Impact on Independence and Objective;
(**Compare to I (B), put more emphasis on the potential impact, direct compri independence violate
I (C), potential compri need fully disclosure)
b. Fully disclo the events have conflicts with Client and Employer;
B）Priority of Transaction
a.Make the transaction for client and employer before one’s own（no ―front running‖ was allowed）;
b.**Simulate the Operation of Client do not violate the Standard;
c.**Limited in IPO、**Establish blackout / restricted period、**Disclo policy was recommended; C） Referral Fee
a.Fully disclo the referral fee ( including the referral fee within firm);
VII）Responsibilities as a CFA Institute Member or CFA Candidate
A）Conduct as Members and Candidates in the CFA Program
a.**No cheat in Exam (including any other exam); No discussion for the answer of the exam question;
b.Properly fill Professional Conduct Statement and Professional Development Program;
c.**No Prohibit expressing opinion about program and CFA Institute;
B）Reference to CFA Institute, the CFA designation, and the CFA Program
a.**No Imply superior performance due from CFA;
b.**Reference：Register in Exam (CFA Level I Candidate),
not Register in Exam （Pass the CFA Level II Exam two years ago）
c.Submit CPS and pay the Annual Due Timely;
d.**―CFA‖ only be ud as adjective or after one’s name, can’t be ud as noun;
⏹Global Investment Performance Standard (GIPS)
1)Main Misleading Practice：Reprentative Accounts、Survivorship Bias、Varying Time Periods;
2)**Apply to Investment Management Firms and intend to rve Prospective and Existing Clients;
3)Voluntarily Compliance;
4)**Composite (a group of individual discretionary portfolios reprent similar investment strategy )
Constructed before performance is known
5)Verification:
a.Performed by Third Party (Independent Verification was recommended) and Firm-Wide Basis
b.Including：Composite Construction、Calculation Method、Data、Format
6)Firm Definition
a.**Including: Discretionary、Non-Discretionary、Fee-Paying、Non-Fee-Paying Accounts
b.Changes in organization, historical composite results cannot be change
c.Include all geographical offices under same brand name was recommended;
7)Data Preparation
a.**Initially prent a minimum of five years (or since inception ) of compliance performance
and added each year to ten years;
b.**Non-compliance period before compliance history must be fully disclo and not allow after
January 1, 2000;
c.**Firms compliance with CVG (Country Version GIPS) before Jan 1, 2006,
Could report such performance data in subquent GIPS-Compliant prentation;
d.If local regulation conflict with GIPS, comply with the regulation and disclo the conflict;
8)**Compliance Statement：
[ ] has prepared and prented this report in compliance with the Global Investment Standards (GIPS) 9)Eight Major Sections
Fundamental of Compliance; Input Data; Calculation Methodology;
Composite Construction, Disclosures; Prentation and Reporting; **Real Estate; **Private Equity;
⏹Quantitative Methods
1)Time Value of the Money & Discounted Cash Flow
a.Nominal Risk-Free Rate = Real Risk-Free Rate + Expected Inflation Rate
Security Required Interest Rate = Nominal Risk-Free Rate + Default Risk Premium
Liquidity Premium + Maturity Risk Premium
