STRATEGY BASED ON VOLUME WHICH MAKES THE SIMPLE VWAP, TWAP, OR SUN...

3.

strategy based on

volume which makes the simple

VWAP, TWAP, or

Sun

participation algorithmic trading strategy best suited for this

another benchmark

trade.

Candidate discussion: Maximum 6 points. 1 point for each algorithmic trading strategy. 1 point

for each justification.

(Study Session 16, LOS 31.l)

C. Shoemaker has expressed concern about the role of traders in the future. State whether

Shoemaker's statement regarding the future of the trader function is correct or incorrect

and supportyour decision with one reason.

Grading Guide

Answer for Question 1-C

Circle

one Defend Your Selection

(2 points)

 Traders needed to monitor automatic trading process and manage more

complicated trades.

 Role of trader has changed with greater emphasis on thinking strategically and

tactically rather than managing broker relationships.

Incorrect

Candidate discussion:

(1 point)

Rather than eliminating traders, algorithmic trading strategies will make them

more productive by increasing the amount that can be traded at a lower cost with

less error. The role of a trader has changed under algorithmic trading as greater

emphasis is placed on strategic and tactical decision making rather than managing

broker relationships. The automated trading process needs to be monitored thus

the role of a trader would not be eliminated.

Candidate discussion: Maximum 3 points. 1 point for incorrect. 2 points for one correct

statement.

(Study Session 16, LOS 31.k)

QUESTION 2 HAS TWO PARTS (A, B) FOR A TOTAL OF 12 MINUTES

Dennis Richardson is the chief investment officer for Delray Portfolio Managers. Delray provides

investment management services for institutions and wealthy individuals. Richardson is

discussing the requirements for compliance with the Global Investment Performance Standards

(GIPS

) and makes the following comments:

"We have not reported the performance for our real estate composite because we only have

eight portfolios in it, which is less than the minimum number of portfolios required to form a

composite. Once we have the required ten portfolios necessary for composite creation, we will

begin reporting performance for the real estate composite."

"We have different policies for when portfolios are added to a composite. The time period for

inclusion of new portfolios is longer for the private equity composite than it is for the small cap

equity composite."

...

A. State whether or not each of these comments is consistent with the GIPS standards. If

inconsistent, recommend the change necessary to bring the firm into compliance with the GIPS

standards.

Answer for Question 2-A

Is the

comment

consistent

If not, recommend the change that

Comment

with the

will bring the firm into GIPS

requirements

compliance

of GIPS?

(circle one)

Firm required to report performance

of composite regardless of how many

portfolios are in it.

"We have not reported the

performance for our real estate

There is no minimum required

composite because we only have

number of portfolios necessary for

eight portfolios in it, which is less

composite creation. Richardson may

than the minimum number of

No

portfolios required to form a

have been thinking of the

requirement for reporting the number

composite. Once we have the

required ten portfolios necessary for

of portfolios in a composite. To be

composite creation, we will begin

GIPS compliant firms must report the

reporting performance for the real

number of portfolios in a composite

and a measure of internal dispersion

estate composite."

unless there are five or less portfolios

in the composite.

This policy is consistent with the

"We have different policies for when

GIPS standards. Depending on the

portfolios are added to a composite.

Yes

type of asset, it can take several

The time period for inclusion of new

months to find a suitable investment

portfolios is longer for the private

for an investor's funds. Finding an

equity composite than it is for the

investment in the private equity

small cap equity composite."

world can often take longer than in

the case of publicly traded equity.

Candidate discussion: Maximum 6 points. 1 point each for correctly identifying whether the

comment is inconsistent with the GIPS standards. 2 points for recommending the change

necessary to bring the firm into compliance with the GIPS standards. 0 points possible if the

yes/no decision is wrong. 3 points for correctly identifying whether a comment is consistent with

GIPS.

(Study Session 18, LOS 34.h, k)

Delray recently acquired BJ Asset Management (BJAM). The acquisition was amiable and Delray

took possession of all BJAM records and has contracted for the investment staff to remain in

place. Delray is excited about the business opportunities of the acquisition. It will significantly

extend Delray's management expertise into new areas, including wrap fee accounts. BJAM was

GIPS compliant, though unverified, and all of its composites are materially different from those of

Delray. The only disappointment is that Ben Jones, the founder of BJAM, will retire. However,

Jones ceased his involvement in the investment management side of BJAM about five years

ago. The rest of BJAM's investment staff will continue to be responsible for the old BJAM asset

management composites.

Richardson is reviewing a staff report of BJAM's GIPS compliance procedures and has three

concerns with the report: