Learning Module 8 of Ethical and Professional Standards 10–15% of the exam

Guidance for Standard VI: Conflicts of Interest

3 lessons. About 16 minutes in cram mode, 76 minutes in full.

Start with lesson 1 Learn with Sensei Read the module summary Practice this module

Lessons

1
Standard VI(A): Avoid or Disclose Conflicts
demonstrate 6 min cram, 30 min full
2
Standard VI(B): Priority of Transactions
demonstrate 6 min cram, 28 min full
3
Standard VI(C): Referral Fees
demonstrate 4 min cram, 18 min full

What the exam expects you to do

Demonstrate the application of the Code of Ethics and Standards of Professional Conduct to situations involving issues of professional integrity.Standard VI(A): Avoid or Disclose Conflicts
Recommend practices and procedures designed to prevent violations of the Code of Ethics and Standards of Professional Conduct.Standard VI(A): Avoid or Disclose Conflicts
Identify conduct that conforms to the Code and Standards and conduct that violates the Code and Standards.Standard VI(A): Avoid or Disclose Conflicts

Module summary

The whole module on one sheet, organised by lesson: what to memorize, how the ideas fit together, the formulas and the key terms. No paragraphs, just what you need to revise.

Hide what I know

How deeply to learn each part

Know the idea: Understand it in general. It frames other topics, but you will not calculate with it.
Use it: Understand it well enough to solve a question with it. Recognize when it applies.
Memorize: Learn it by heart. The exam will not give it to you.

Standard VI(A): Avoid or Disclose Conflicts

Known

MemorizeStandard VI(A): what to know cold

Point	The rule
Trigger	Anything that could reasonably be expected to impair independence and objectivity or interfere with duties to clients, prospects and the employer
Step 1	Avoid actual or apparent conflicts where reasonably possible
Step 2	If not reasonable, disclose fully and fairly
Good disclosure	Prominent, in plain language, effective at getting the message across
Who	Clients, prospects and the employer, as relevant
Update	When the conflict changes materially; err on the side of caution
Classic sources	Pay structures, stock you own, board seats, cross-departmental ties

Memory hook Avoid it, or make it impossible to miss: if the reader needs a magnifying glass, it is not disclosed.

Know it cold Avoidable conflict left in place, or disclosure that is buried or jargon-filled = violation. Since 2023 the title is "Avoid or Disclose", not just "Disclosure".

Key terms

conflict of interest Memorize
avoid or disclose Memorize
prominent plain-language disclosure Memorize
cross-departmental conflicts Use it
stock ownership conflicts Use it
board membership Use it
compensation structures Use it

Standard VI(A): the conflict ladder

A matter that could impair independence or objectivityactual or apparent

Rung 1: avoid Memorize preferred; where reasonably possible
- Sell or do not take the holding
- Decline the outside role or extra pay
Rung 2: disclose Memorize when avoiding is not reasonable
- Prominent not in a footnote
- Plain language no jargon or legalese
- Effective the reader understands it
Who must be told Use it
- Clients and prospects
- The employer promptly, with enough detail to assess it

Common sources of conflict

Where conflicts come from

Compensation structures Use it bonuses tied to short-term results or banking revenue
Stock ownership Use it beneficial ownership of securities you recommend
Board membership Use it duties to shareholders, MNPI, option grants
Cross-departmental ties Use it research, banking, sales and marketing pressure
Issuer relationships Use it directorship, consultancy, underwriting, market making

Standard VI(B): Priority of Transactions

Known

MemorizeStandard VI(B): what to know cold

Point	The rule
Order	Clients, then employer, then you (any account with beneficial ownership)
Personal trading is allowed if	client not disadvantaged; you do not benefit from client trades; you follow regulation
Forbidden	Front running; trading on pending client orders, recommendation changes or research
Beneficial ownership	Own, family, and accounts with a pecuniary interest (trust, retirement)
Family client accounts	Treat like any client: no favor, no disadvantage
Procedures	IPO limits, private placement limits, blackout periods, reporting
Reporting	Holdings at hire and at least annually; duplicate confirmations; preclearance

Memory hook Clients, firm, me: the same order as a queue at a counter. Jumping the queue is front running.

Know it cold Personal trade ahead of a related client trade = violation. A fee-paying relative gets no special treatment and no penalty.

Key terms

priority of transactions Memorize
beneficial ownership Memorize
front running Memorize
blackout period Use it
restricted period Use it
preclearance Memorize
IPO participation Use it
private placements Use it
family accounts Memorize

Standard VI(B): who trades first

Order of transactions

1. Clients Memorize always first
2. Employer Memorize firm accounts
3. Personal Memorize accounts where you are a beneficial owner
- Your own account
- Family accounts unless a genuine fee-paying client account
- Accounts with a pecuniary interest trust, retirement

Recommended personal-trading procedures

Firm policy on personal investingdisclosed to clients and prospects

Limit IPO participation Memorize and preclear any
Restrict private placements Memorize strict limits, supervisory review
Blackout or restricted periods Memorize around client trades
Reporting requirements Memorize
- Holdings disclosure at hire and at least annually
- Duplicate confirmations and periodic statements
- Preclearance of planned personal trades

Standard VI(C): Referral Fees

Known

MemorizeStandard VI(C): what to know cold

Point	The rule
What	Any compensation, consideration or benefit: cash, soft dollars or in kind
Direction	Received or paid
Tell	Employer, clients and prospects, as appropriate
When	Before any formal agreement for services
Content	The nature (flat or percentage, one-time or continuing, performance-based, noncash) and the estimated dollar value
Inside the firm	Inter-departmental referral pay counts too
Employer updates	At least quarterly on the amount and nature received

Memory hook Any benefit, either way, before the signature: what it is and what it is worth.

Know it cold Referral benefit not disclosed, or disclosed after the client signs = violation. Non-cash and reciprocal referrals are not exempt.

Key terms

referral fees Memorize
disclosure before engagement Memorize
nature and value of consideration Memorize
inter-departmental referrals Use it

Standard VI(C): the disclosure checklist

Benefit given or received for a recommendationcash, soft dollars or in kind

To whom Memorize
- Employer
- Clients and prospects as appropriate
When Memorize
- Before any formal agreement never after signing
What to say Memorize
- Nature of the consideration flat fee or percentage, one-time or continuing, performance-based, noncash
- Estimated dollar value