Ethics, regulation and compliance
Ethics, regulation and compliance tests judgement under conflict: whether you can identify the duty owed, the permitted conduct and the disclosure required.
Core rules
- Fiduciary duty means loyalty and care; client interests precede the firm's and your own.
- Material non-public information: do not trade or tip. A mosaic of public information plus independent analysis is permitted.
- Conflicts must be disclosed and, where possible, eliminated or managed; disclosure alone does not cure an unfair allocation.
- Fair dealing: order allocation must follow a pre-stated policy, not be decided after results are known.
- Records and performance must be accurate; no cherry-picking or misrepresentation.
Worked example
A block trade fills in full, but the manager allocates the winners to the top-performing client and the losers to a new account. This breaches fair dealing, because allocation must follow a pre-established method applied consistently, and retroactive allocation based on outcome is prohibited. Had the order filled only partially, a pro-rata allocation consistent with the disclosed policy would be acceptable.
Traps that cost marks
- Assuming written disclosure makes any conflict acceptable.
- Treating a small non-cash client gift as harmless.
- Charging research used for all clients to a single account.
- Acting on information received in a casual conversation and assuming it is public.