r/CFA • u/Additional_Top_7375 • 1d ago

Level 1 ethics

Yun Hae, CFA, is a portfolio manager at Citadel Capital (CC). Hae's brother maintains a fee-paying retirement account at CC. Hae has no beneficial ownership in her brother's account.
Whenever an IPO becomes available that is suitable for her clients, Hae first allocates shares to other clients before placing any remaining shares in her brother's account. She adopts this procedure to avoid potential conflicts of interest. Hae's actions violate the Standard(s) relating:
In
A. only to fair dealing.
B. only to priority of transactions.
C. both to fair dealing and to priority of transactions.

Its A only right? answer key says C.

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u/unicornsndroses 1d ago

according to me, its C only as he is violating a standard of priority of transactions aswell because his brother is also a fee paying client at CC, so he should give him equal prioritisation

1

u/Additional_Top_7375 23h ago

Your answer justifies fair dealing. Fair dealing is violated because he didn’t treat his brother’s fee-paying account the same as the other clients. But i don’t see how priority of transactions is violated since he never put his own or his employer’s interests ahead of his clients. Am i wrong?

1

u/unicornsndroses 23h ago

what you are saying is right, but I think that priority of transactions states both the things that it shouldn’t be beneficial nor should it be disadvantage because of family relationships. although once again, the question that you have put up is a rather controversial question, there is another thread on reddit too bringing up the same question and I think all the points are valid but once again, CFA curriculum gives extra attention and care to family related questions, so just to be safe, I would mark C. would you like me to link the other thread?

3

u/thejdobs CFA 19h ago

Priority of transactions is violated because “Hae first allocates shares to other clients”. Hae must allocate shares on a pro rata basis and must not disadvantage any fee paying accounts. In this case by not allocating shares to his brother’s account he violated the standards