ETHICS IN TRADING

-the do’s and don’ts

-the do’s and don’ts

Pre

sen

ted

by

Dr.

Nazatu

lS

him

a

Ms. C

ecil

ia A

nth

on

y D

as

WHAT IS ETHICS?

•A

fe

w y

ea

rs a

go

, so

cio

log

ist R

aym

on

d B

au

mh

art

aske

d b

usin

ess p

eo

ple

,

"Wh

at

do

es e

thic

s m

ean

to

yo

u?

" A

mong t

heir r

eplie

s w

ere

the follo

win

g:

Am

ong t

heir r

eplie

s w

ere

the follo

win

g:

"Eth

ics h

as t

o d

o w

ith w

hat

my f

eelin

gs t

ell

me is

right or

wro

ng.“

"Eth

ics h

as t

o d

o w

ith m

y r

elig

ious b

elie

fs.“

"Bein

g e

thic

al is

doin

g w

hat

the law

requires.“

"Eth

ics c

onsis

ts o

f th

e s

tandard

s o

f behavio

ur

our

socie

ty a

ccepts

.“

"I d

on't

know

what

the w

ord

means."

IS THAT WHAT

ETHIC MEANS?

WHAT THEN IS

ETHICS?

•E

thic

s is

tw

o t

hin

gs

. (A

)re

fers

to w

ell

based s

tan

dard

s o

f ri

gh

t an

d w

ron

g that

pre

scribe w

hat

hu

man

s o

ug

ht

to d

o, usually

in t

erm

s o

f

rights

, oblig

ations,

benefits

to s

ocie

ty, fa

irness,

or

specific

virtu

es.

virtu

es.

(B)

refe

rs to the s

tud

y a

nd

develo

pm

en

t o

f o

ne's

eth

ical

sta

nd

ard

s. S

o it is

necessary

to c

on

sta

ntl

y e

xam

ine o

ne's

sta

nd

ard

s t

o e

nsu

re t

hat

they a

re r

easo

nab

le a

nd

well

-

fou

nd

ed

-a c

ontinuous e

ffo

rt o

f stu

dyin

g o

ur

ow

n m

ora

l

beli

efs

an

d o

ur

mo

ral co

nd

uct ,

and s

triv

ing t

o e

nsure

that

we, and t

he institu

tions w

e h

elp

to s

hape,

live u

p t

o s

tandard

s

that are

reasonable

and s

olid

ly-b

ase

d.

TEST YOURSELF

•D

o I m

ind o

thers

know

ing w

hat

I have d

ecid

ed?

Tra

nspare

ncy

•W

ho d

oes m

y d

ecis

ion a

ffect or

hurt

?

Effect

•W

ould

my d

ecis

ion b

e c

onsid

ere

d

fair b

y those a

ffecte

d?

Fairness

Do

�D

o le

arn

as m

uch

as

�p

ossib

le a

bo

ut

tra

din

g a

nd

its

str

ate

gie

s.

str

ate

gie

s.

�K

no

wle

dg

e is, in

de

ed

, p

ow

er.

�It is u

ne

thic

al to

re

pre

se

nt to

yo

ur

clie

nt

yo

ur

clie

nt th

at

yo

u k

no

w

wh

en

yo

u d

on

’t

Eth

ics in tra

din

g –

the d

os’ and d

onts

’

Do

�D

o h

ave

a m

on

ey m

an

ag

em

en

t

pla

n in

pla

ce

an

d fo

llow

it

�Y

ou

are

en

tru

ste

d w

ith

yo

ur

�Y

ou

are

en

tru

ste

d w

ith

yo

ur

clie

nt’s m

on

ey

Do

�H

ave r

easonable

expecta

tions.

�S

ure

, a g

iven t

rade c

an y

ield

35%

or

150%

in a

month

, but th

at doesn't

mean you're g

oin

g t

o m

ake t

hat

rate

annualiz

ed.

Can it be d

one? O

f

cours

e it could

be d

one,

but

is t

hat a

reasonable

expecta

tion? P

robably

not.

�It

is u

neth

ical to

pro

mis

e t

he

undoable

Do �D

o m

ake

yo

ur

ow

n d

ecis

ion

s.

�N

o o

ne

ca

res a

s m

uch

ab

ou

t yo

ur

clie

nt’s m

on

ey a

s y

ou

do

. N

o o

ne

.clie

nt’s m

on

ey a

s y

ou

do

. N

o o

ne

.

�A

pp

ly y

ou

r o

wn

kn

ow

led

ge

, g

ain

•kn

ow

led

ge

, u

se

yo

ur

co

mm

on

se

nse

•a

nd

do

n't

blin

dly

fo

llow

oth

ers

.

Work

flow

s I: B

asic

s y

ou s

hould

know

Do

�D

o u

nders

tand h

ow

much is a

t risk

in e

ach t

rade a

nd c

om

pare

that

to

the p

ote

ntial re

ward

when y

ou m

ake

the judgm

ent

to e

nte

r th

at

part

icula

r th

e judgm

ent

to e

nte

r th

at

part

icula

r

trade o

r not.

Do �

Deale

rs b

y n

atu

re p

erf

orm

specia

lise

d a

nd

pro

fessio

nal activitie

s b

ased o

n

acknow

ledged f

iducia

ry a

nd a

gency

rela

tionship

s.

�S

uch b

ein

g t

he c

ase, D

O e

nsure

that all

�S

uch b

ein

g t

he c

ase, D

O e

nsure

that all

share

dealin

gs e

ffecte

d thro

ugh y

ou

confo

rm to s

om

e m

inim

um

sta

ndard

s t

o

ensure

that th

ese f

iducia

ry a

nd a

gency

rela

tionship

s a

re n

ot abused.

Do

�D

eale

rs e

xis

t to

render

valu

able

and n

eeded s

erv

ices t

o the

investing p

ublic

.

�Y

ou n

eed t

o b

e a

ccessib

le,

pro

fessio

nal, e

ffic

ient,

as

well

as f

air in d

ealin

gs,

need t

o identify

and a

dhere

to c

ert

ain

princip

les a

nd p

ractices.

princip

les a

nd p

ractices.

Do

�D

O ensure

that y

ou a

dhere

to the p

olic

y that

is in p

lace in t

he c

om

pany w

ith r

egard

s to a

ll th

e a

ccounts

and d

eal w

ith them

fairly

, pru

dently a

nd u

niform

ly a

cro

ss the b

oard

.pru

dently a

nd u

niform

ly a

cro

ss the b

oard

.

Work

flow

s I: B

asic

s y

ou s

hould

know

HOW CONFIDENT

ARE YOU

ETHICALLY?

Eth

ical C

heckli

st

Cir

cle

th

e a

pp

rop

riate

an

sw

er

on

th

e s

cale

; "1

" =

no

t at

all

; "5

" =

to

tall

y y

es

Re

leva

nt

Info

rma

tio

n T

es

t. H

ave

I/w

e o

bta

ine

d a

s m

uch

info

rma

tio

n

as p

ossib

le to

ma

ke

an

in

form

ed d

ecis

ion a

nd

actio

n p

lan

fo

r th

is

situ

atio

n?

1

2

3

4

5

Invo

lve

me

nt

Te

st.

Ha

ve

I/w

e in

vo

lve

d a

ll w

ho

ha

ve

a r

igh

t to

ha

ve

1

2

3

4

5In

vo

lve

me

nt

Te

st.

Ha

ve

I/w

e in

vo

lve

d a

ll w

ho

ha

ve

a r

igh

t to

ha

ve

inp

ut a

nd

/or

to b

e in

vo

lve

d in

ma

kin

g th

is d

ecis

ion

an

d a

ctio

n p

lan

?1

2

3

4

5

Co

ns

eq

ue

nti

al Te

st.

Ha

ve

I/w

e a

nticip

ate

d a

nd

att

em

pte

d to

acco

mm

oda

te fo

r th

e c

on

se

qu

ences o

f th

is d

ecis

ion

an

d a

ctio

n p

lan

on

an

y w

ho

are

sig

nific

an

tly e

ffe

cte

d b

y it?

1

2

3

4

5

Fa

irn

es

s T

es

t. If

I/w

e w

ere

assig

ne

d to

ta

ke

th

e p

lace

of a

ny o

ne

of

the

sta

ke

ho

lders

in t

his

situ

atio

n, w

ou

ld I/w

e p

erc

eiv

e th

is d

ecis

ion

an

d a

ctio

n p

lan

to

be

esse

ntia

lly fa

ir, giv

en

all

of th

e c

ircu

msta

nce

s?

1

2

3

4

5

En

du

rin

g V

alu

es

Te

st.

Do

th

is d

ecis

ion

an

d a

ctio

n p

lan

up

ho

ld

my/o

ur

prio

rity

en

du

rin

g v

alu

es th

at a

re r

ele

va

nt to

th

is s

itu

atio

n?

1

2

3

4

5

Un

ive

rsa

lity

Te

st.

Would

I/w

e w

an

t th

is d

ecis

ion

an

d a

ctio

n p

lan

to

be

co

me a

un

ive

rsa

l la

w a

pp

lica

ble

to

all

sim

ilar

situ

atio

n, e

ve

n to

myse

lf/o

urs

elv

es?

1

2

3

4

5

HOW CONFIDENT ARE

YOU ETHICALLY?

Lig

ht-

of-

Da

y T

es

t. H

ow

wo

uld

I/w

e f

ee

l a

nd

be

re

ga

rde

d b

y o

the

rs

(wo

rkin

g a

ss

oc

iate

s, fa

mil

y, e

tc.)

if

the

de

tail

s o

f th

is d

ec

isio

n a

nd

a

cti

on

pla

n w

ere

dis

clo

se

d f

or

all

to

kn

ow

?

1

2

3

4

5

To

tal E

thic

al A

naly

sis

Co

nfi

den

ce S

co

re .

Pla

ce t

he t

ota

l of all

circle

d n

um

bers

here

.

Ho

w c

on

fid

en

t c

an

yo

u b

e t

ha

t yo

u h

av

e d

on

e a

H

ow

co

nfi

de

nt

ca

n y

ou

be

th

at

yo

u h

av

e d

on

e a

g

oo

d j

ob

of

eth

ica

l a

na

lys

is?

7

-14

1

5-2

1

22

-28

2

9-3

5

No

t ve

ry c

on

fid

en

t S

om

ew

ha

t c

on

fid

en

t Q

uit

e c

on

fid

en

t V

ery

co

nfi

de

nt

Don’t

�D

on't

ente

r in

to a

ny s

ecurities

transaction b

ased o

n r

um

ours

and

ungro

unded b

elie

fs u

nle

ss y

ou f

ully

ungro

unded b

elie

fs u

nle

ss y

ou f

ully

unders

tand a

nd a

ppre

cia

te t

he r

isks.

Don’t

�D

on

't le

t e

mo

tio

n r

ule

yo

ur

tra

din

g.

Le

arn

ho

w to

en

ter

an

d e

xit a

t p

oin

ts

tha

t a

re d

ete

rmin

ed

by p

rese

t ru

les.

Don’t

�D

o N

ot N

EG

LE

CT

the term

s o

f th

e C

lient

–B

roker

Agre

em

ent

�E

nsure

all

transactions a

re in a

ccord

ance to

the term

s a

nd y

ou a

re n

ot causin

g a

ny

the term

s a

nd y

ou a

re n

ot causin

g a

ny

unw

arr

ante

d r

isks to y

our

em

plo

yers

Don’t

�D

o n

ot in

dulg

e in a

ny m

anip

ula

tive a

ctivitie

s

whic

h r

esults in d

istu

rbance o

f m

ark

et

equili

brium

inclu

din

g m

anip

ula

ting s

hare

prices

prices

RESOLVING ETHICAL

DILEMMA

•C

on

sid

er

the c

on

seq

uen

ce o

f yo

ur

acti

on

s.

•W

ho

will b

eh

elp

ed

by w

hat

yo

u d

o?

•W

ho

will b

eh

urt

?

•W

hat

kin

do

f b

en

efi

ts a

nd

harm

s a

re w

e t

alk

ing

ab

ou

t?

•H

ow

do

es a

ll o

f th

is l

oo

k o

ver

the lo

ng

ru

nas w

ell a

s t

he s

ho

rt

run

ST

EP

1:

AN

ALY

ZE

TH

E

CO

NS

EQ

UE

NC

ES

•co

nsid

er

all

of yo

ur

op

tio

ns fro

m a

co

mp

lete

ly d

iffe

ren

t p

ers

pe

ctive

•C

on

ce

ntr

ate

str

ictly o

n t

he

actio

ns

ST

EP

2:

AN

ALY

ZE

TH

E

AC

TIO

NS

•ta

ke

bo

th p

art

s o

f yo

ur

an

aly

sis

in

to

acco

un

t a

nd

ma

ke

a d

ecis

ion

ST

EP

3:

MA

KE

A D

EC

ISIO

N

THANK YOU