Ethical issues to be considered when trading

1. ETHICS IN TRADING
-the do’s and don’ts
Presented by
Dr. Nazatul Shima
Ms. Cecilia Anthony Das

2. WHAT IS ETHICS?
• A few years ago, sociologist Raymond Baumhart
asked business people,
"What does ethics mean to you?"
Among their replies were the following:
"Ethics has to do with what my feelings tell me is
right or wrong.“
"Ethics has to do with my religious beliefs.“
"Being ethical is doing what the law requires.“
"Ethics consists of the standards of behaviour our
society accepts.“
"I don't know what the word means."

3. IS THAT WHAT
ETHIC MEANS?

4. WHAT THEN IS
ETHICS?
• Ethics is two things.
(A) refers to well based standards of right and wrong that
prescribe what humans ought to do, usually in terms of
rights, obligations, benefits to society, fairness, or specific
virtues.
(B) refers to the study and development of one's ethical
standards. So it is necessary to constantly examine one's
standards to ensure that they are reasonable and well-
founded - a continuous effort of studying our own moral
beliefs and our moral conduct, and striving to ensure that
we, and the institutions we help to shape, live up to standards
that are reasonable and solidly-based.

5. TEST YOURSELF
• Do I mind others knowing what I
Transparency have decided?
• Who does my decision affect or
Effect hurt?
• Would my decision be considered
Fairness fair by those affected?

6. Do
Do learn as much as
possible about trading and its
strategies.
Knowledge is, indeed, power.
It is unethical to represent to your client
your client that you know
when you don’t
Ethics in trading – the dos’ and donts’

7. Do
Do have a money management
plan in place and follow it
You are entrusted with your
client’s money

8. Do
Have reasonable expectations.
Sure, a given trade can yield 35% or
150% in a month, but that doesn't
mean you're going to make that
rate annualized. Can it be done? Of
course it could be done, but is that a
reasonable expectation? Probably
not.
It is unethical to promise the
undoable

9. Do
Do make your own decisions.
No one cares as much about your
client’s money as you do. No one.
Apply your own knowledge, gain
• knowledge, use your common sense
• and don't blindly follow others.
Workflows I: Basics you should know

10. Do
Do understand how much is at risk
in each trade and compare that to
the potential reward when you make
the judgment to enter that particular
trade or not.

11. Do
Dealers by nature perform specialised and
professional activities based on
acknowledged fiduciary and agency
relationships.
Such being the case, DO ensure that all
share dealings effected through you
conform to some minimum standards to
ensure that these fiduciary and agency
relationships are not abused.

12. Do
Dealers exist to render valuable and needed services to the
investing public.
You need to be accessible, professional, efficient, as
well as fair in dealings, need to identify and adhere to certain
principles and practices.

13. Do
DO ensure that you adhere to the policy that
is in place in the company with regards to all
the accounts and deal with them fairly,
prudently and uniformly across the board.
Workflows I: Basics you should know

14. HOW CONFIDENT
ARE YOU
ETHICALLY?
Ethical Checklist Circle the appropriate answer on the scale; "1" = not at all;
"5" = totally yes
Relevant Information Test. Have I/we obtained as much information 1 2 3 4 5
as possible to make an informed decision and action plan for this
situation?
Involvement Test. Have I/we involved all who have a right to have 1 2 3 4 5
input and/or to be involved in making this decision and action plan?
Consequential Test. Have I/we anticipated and attempted to 1 2 3 4 5
accommodate for the consequences of this decision and action plan
on any who are significantly effected by it?
Fairness Test. If I/we were assigned to take the place of any one of 1 2 3 4 5
the stakeholders in this situation, would I/we perceive this decision
and action plan to be essentially fair, given all of the circumstances?
Enduring Values Test. Do this decision and action plan uphold 1 2 3 4 5
my/our priority enduring values that are relevant to this situation?
Universality Test. Would I/we want this decision and action plan to 1 2 3 4 5
become a universal law applicable to all similar situation, even to
myself/ourselves?

15. HOW CONFIDENT ARE
YOU ETHICALLY?
Light-of-Day Test. How would I/we feel and be regarded by others 1 2 3 4 5
(working associates, family, etc.) if the details of this decision and
action plan were disclosed for all to know?
Total Ethical Analysis Confidence Score .
Place the total of all circled numbers here.
How confident can you be that you have done a
good job of ethical analysis?
7-14 Not very confident
15-21 Somewhat confident
22-28 Quite confident
29-35 Very confident

16. Don’t
Don't enter into any securities
transaction based on rumours and
ungrounded beliefs unless you fully
understand and appreciate the risks.

17. Don’t
Don't let emotion rule your trading.
Learn how to enter and exit at points
that are determined by preset rules.

18. Don’t
Do Not NEGLECT the terms of the Client –
Broker Agreement
Ensure all transactions are in accordance to
the terms and you are not causing any
unwarranted risks to your employers

19. Don’t
Do not indulge in any manipulative activities
which results in disturbance of market
equilibrium including manipulating share
prices

20. RESOLVING ETHICAL
DILEMMA
• Consider the consequence of your actions.
STEP 1: • Who will be helped by what you do?
• Who will be hurt?
ANALYZE THE • What kind of benefits and harms are we talking about?
• How does all of this look over the long run as well as the short
CONSEQUENCES run
STEP 2: • consider all of your options from a
ANALYZE THE completely different perspective
ACTIONS • Concentrate strictly on the actions
STEP 3: • take both parts of your analysis into
MAKE A DECISION account and make a decision

21. THANK YOU