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CS Professional · IFSCA - Regulations, Listing and Compliances · Capital Market Intermediaries

Zenith Advisors, an IFSCA-registered intermediary, has a research team that recommends a stock while the firm's proprietary desk holds a large undisclosed position in it. A client asks why no mention was made. Which statement best reflects the code of conduct?

The firm must identify and manage the conflict, and disclose it to clients where it cannot be avoided. Separate departments or commercial sensitivity do not excuse silence, because the code of conduct requires fair treatment of clients and transparency about conflicts of interest.

  1. ANo disclosure is needed because research and proprietary trading are separate departments
  2. BDisclosure is needed only if the position exceeds the client's holding
  3. CThe intermediary should identify and manage the conflict of interest, disclosing it to clients where it cannot be avoided, rather than staying silentCorrect
  4. DThe firm may withhold the position because it is commercially sensitive

Explanation

Intermediaries must avoid, or else disclose and manage, conflicts of interest and treat clients fairly. Internal departmental separation helps but does not remove the duty to disclose an unavoidable conflict. Comparing with the client's holding is irrelevant.

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