Question #53
Reading: Reading 42.3 Standards of Professional Conduct Guidance for Standards III
PDF File: Reading 42.3 Standards of Professional Conduct Guidance for Standards III.pdf
Page: 22
Status: Correct
Correct Answer: A
Question
Tony Calaveccio, CFA, is the manager of the TrustCo Small Cap Venture Fund in Toronto. He places trades for the fund with Canadian Brokerage. Canadian provides Calaveccio with soft dollars to purchase research. He uses these soft dollars to get research reports from Canadian's research department regarding the issues currently held in the small cap portfolio, and also for firms he is contemplating adding to the portfolio. By using soft dollars in this manner, Calaveccio has:
Answer Choices:
A. violated the Code and Standards by acquiring research on issues that the fund already holds but not by acquiring research on issues contemplated for purchase
B. violated the Code and Standards by acquiring research on issues contemplated for purchase but not by acquiring research on currently held issues
C. not violated the Code and Standards
Explanation
"Soft dollars" are the property of the client (in this case the holders of the shares of the
Small Cap Venture Fund). Standard III(A) Loyalty, Prudence, and Care delineates the
member's responsibilities. Since he is clearly using the soft dollars to obtain research that
is directly applicable to his professional duties, there is no violation of the Standard.
(Module 42.4, LOS 42: III(A))