THE SOFT‐DOLLAR ARRANGEMENT DESCRIBED BY BASSETT IS MOST LIKELY...

12. The soft‐dollar arrangement described by Bassett is most likely a violation of the CFA Institute

Standards because:

A. soft‐dollar agreements are prohibited under the Standards.

B. soft‐dollar agreements cannot be used for electronic direct market access (DMA) execution

services.

C. soft dollars should not be being used to pay for the commissions due on trades to reverse

errors.

Ethics and Professional Standards

Question 3

Use the following information to answer the next six questions.

Epic Advisers Ltd (“Epic”) is an institutional investment adviser responsible for the management of

several large multistrategy hedge funds. While the funds are registered offshore, Epic is located in the

United States and as such is a registered Investment Adviser and subject to relevant law and regulations.

Two years ago one of Epic’s flagship funds, run by manager Barry Wolf lost two‐thirds of its value in a

matter of a few weeks and was subsequently liquidated having failed to meet the margin calls of its prime

broker. After some senior management changes, the fortunes of the company improved and a review is

now being carried out into the policy and process followed by managers at the firm, with a long‐term

view to adopting the CFA Institute Asset Manager Code of Professional Conduct (“The Code”).

Felicity Biggles is an ethics and regulatory consultant that has been hired to carry out the review. She has

been tasked with explaining to senior management of the firm how following the requirements of The

Code could potentially prevent a similar collapse in future.

Biggles begins her work by looking at an executive review of the reasons why the collapse took place.

This review has some key points outlined in Exhibit 1.

Exhibit 1

Executive Summary of Circumstances that Contributed to Fund Collapse