Regulatory Compliance & Ethical Standards Flashcards

Under the Global Investment Performance Standards (GIPS), composite performance must include:

Answer: All fee-paying discretionary accounts managed to a similar strategy

GIPS requires that all fee-paying discretionary accounts managed according to a similar strategy be included in composites to prevent cherry-picking of results.

A 'whistleblower' under the SEC's Dodd-Frank whistleblower program is entitled to:

Answer: An award of 10-30% of sanctions collected when the tip leads to a successful SEC enforcement action exceeding $1 million

The SEC whistleblower program awards 10-30% of monetary sanctions collected in successful enforcement actions exceeding $1 million based on original information provided.

An investment fund that relies on the '3(c)(7)' exemption from Investment Company Act registration must limit its investors to:

Answer: Qualified purchasers owning at least $5 million in investments

The 3(c)(7) exemption is available to funds that sell exclusively to 'qualified purchasers,' which includes individuals owning at least $5 million in investments.

The ethical principle of 'independence and objectivity' in fund management is most threatened when a manager:

Answer: Accepts excessive compensation or gifts that could influence investment recommendations

Accepting excessive compensation or gifts from interested parties compromises independence and objectivity by creating personal financial incentives that may bias recommendations.

Which regulatory requirement applies when a hedge fund manager 'crosses' trades between two client accounts it manages?

Answer: Cross trades must be executed at a fair price and disclosed to both client accounts

Cross trades between client accounts are permissible only if conducted at a fair market price and properly disclosed to both parties involved in the transaction.

A fund manager seeking to terminate a client relationship ethically must:

Answer: Provide reasonable notice and assist in transitioning the account to minimize client disruption

Ethical termination of a client relationship requires providing reasonable notice and cooperating in an orderly transition to avoid harming the client.

Under FINRA Rule 3110, broker-dealers managing fund distribution must maintain a supervisory system that:

Answer: Is reasonably designed to achieve compliance with applicable securities laws and FINRA rules

FINRA Rule 3110 requires broker-dealers to establish and maintain a supervisory system, including written procedures, reasonably designed to achieve compliance with applicable laws and rules.