Explanation:
According to the GARP Code of Conduct, FRM members must take reasonable precautions to ensure that any conflicts of interest are resolved and disclosed. Having a beneficial interest (such as voting power in a trust) constitutes a conflict of interest when preparing research reports or recommendations on the related stock. Therefore, Leakey must disclose this situation to his employer and, if permitted to proceed, explicitly disclose this conflict of interest (his status as a beneficiary of BWL stocks) in the research report to maintain objectivity and transparency with clients.
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Q.278 Richard Leakey, FRM, is an analyst with a large portfolio of stocks, including the stock of Brighter World Limited (BWL). Leakey's uncle owns about 20,000 shares of BWL. He informs Leakey that he has created a trust in his name and placed 5,000 BWL shares into the trust. The wording of the trust prevents Leakey from selling the shares until his uncle dies, but may nonetheless vote for the shares. Leakey is due to give an updated research analysis on BWL in a fortnight. Leakey should most appropriately:
A
Disregard the situation and proceed to update the report as usual because he is not a beneficiary of the shares as of now.
B
Notify his superiors that he's no longer in a position to issue recommendations on BWL.
C
Request his uncle to amend the terms of the trust to allow him to sell the shares at any time.
D
Disclose the situation to his employer and, if given the green light to prepare a report, also disclose his new status as a beneficiary of BWL stocks.
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