Ethics & Regulatory Standards Flashcards
7 cards from real CIM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Ethics & Regulatory Standards flashcards as text
Best execution requires an investment manager to:
Answer: Seek the most favorable overall terms reasonably available for client trades
Best execution considers price, cost, speed, likelihood of execution, and service quality, not commission alone.
A manager learns that a colleague is misrepresenting fund performance to prospects. Under widely accepted professional standards, the manager should first:
Answer: Dissociate from the activity and report it to a supervisor or compliance
Professionals must not knowingly participate in misconduct and should dissociate and escalate violations through internal channels.
An adviser executing a principal transaction with an advisory client must, under Section 206(3) of the Advisers Act:
Answer: Disclose its capacity in writing and obtain client consent before completing the transaction
Section 206(3) requires written disclosure and client consent before completion of a principal trade.
Which practice is considered market manipulation?
Answer: Placing and quickly canceling large orders to create a false impression of demand
Spoofing, placing orders with no intent to execute to mislead the market, is illegal manipulation.
Under the SEC Marketing Rule (Rule 206(4)-1), presenting hypothetical performance to a prospective client requires:
Answer: Policies ensuring relevance to the audience's financial situation and objectives
The Marketing Rule permits hypothetical performance only if the adviser has policies ensuring it is relevant to the intended audience and provides sufficient information on its risks and limitations.
A manager's client is an elderly individual whose account suddenly shows large wire requests to an unknown third party. The most appropriate action is to:
Answer: Escalate concerns, contact the trusted contact person, and consider a temporary hold as permitted by rules
FINRA Rule 2165 and related guidance allow firms to contact trusted persons and place temporary holds when financial exploitation of seniors is suspected.
Which of the following is generally NOT considered material nonpublic information?
Answer: An analyst's conclusion derived from piecing together public and immaterial nonpublic data
Under the mosaic theory, conclusions drawn from public and nonmaterial nonpublic information do not constitute MNPI.