Question #66
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: 28
Status: Unattempted
Correct Answer: B
Question
Tony Calaveccio, CFA, is the manager of the TrustCo Small Cap Venture Fund in Toronto. Calaveccio places a trade with Quantco Brokerage. While Calaveccio's part of the transaction was conveyed correctly to Quantco, there was a trading error made in Calaveccio's account due to a slip up within Quantco. Calaveccio realizes that the error has taken place, and informs his contact at Quantco. Calaveccio allows Quantco to cover the error, with no cost to TrustCo. This is:
Answer Choices:
A. a violation of Calaveccio's fiduciary duties
B. a violation of Calaveccio's duty to his employer
C. permissible under CFA Institute Standards
Explanation
The issue is similar to an allocation of soft dollars. Clearly, if the broker absorbs the loss,
they expect to make up the difference in some way. However, since the error was on the
part of Quantco Brokerage, Calaveccio is under no obligation to cover the cost of the
trading error. Moreover, no reasonable observer expects that there exists any implied
future allocation of trades to Quantco in return for correcting their own mistake. There is
no violation of Standard III(A), Loyalty, Prudence, and Care.
(Module 42.4, LOS 42: III(A))