CFA Institute Centre - Update Kurt Schacht, CFA – Managing Director CFA Institute Centre for Financial Market Integrity September 2007

Page 2 CFA Institute & Ethics Ethical Leadership Code of Ethics and Standards of Professional Conduct Global Investment Performance Standards (GIPS) Advocacy Efforts in Financial Reporting CFA Institute Centre for Financial Market Integrity

Page 3 CFA Centre Mission Mission to be a leading voice on issues of fairness, efficiency, and investor protection in global capital markets; and to promote high standards of ethics, integrity and professional excellence within the investment community.

Page 4 Making A Difference What Is the Value of the CFA Centre? Representing the Investor’s VOICE in Regulatory Matters Improving Ethics & Financial Market Integrity Enhancing the CFA Brand through Quality Projects & Publications Standing Up and Being Counted on Key Industry Issues

Page 5 Standards for Our Members CFA Institute Code & Standards

Page 6 Standards for the World Global Investment Performance Standards (GIPS ® ) Convergence of many national standards. Providing consistent performance measurement and reporting for investors worldwide. Experts from a variety of fields within the global investment industry.

Page 7 Standards for the World Asset Manager Code Loyalty to Clients Investment Process & Actions Trading Compliance & Support Performance & Valuation Disclosure

Page 8 Educating Investors Corporate Governance Manual CG scandals have resulted in huge investor losses. Returns are linked to governance. Investors need help: –Recognize the risks, –Understand their implications, and –Know where to find relevant information.

Page 9 Educating Investors Investor Brochure Explaining & Promoting the CFA Charter to Individual Investors Differentiating Investment Managers from Financial Planners and others

Page 10 Thought Leadership Breaking the Short-term Cycle Corporate issuers, analysts, asset managers, institutional investors made recommendations in 5 areas to support building long-term value: Earnings Guidance Reform Incentives Leadership Communications & Transparency Education

New Projects Underway

Page 12 Re-Release of the CBRM New Accounting Model Reporting from Investor Perspective. Reflect Fair Value, Not Historic Cost. All Changes in Net Assets on One New Statement. Require Direct Method Cash Flow.

Page 13 Self-Regulatory Organizations Regulation and Roles of Self-Regulation Optimum role of government in regulation of global financial markets Conflicts between markets and regulators Continued Viability of SROs Characteristics of successful regulatory systems Duplicative rules and regulations, overlapping jurisdictions and financial sectors Risk of regulatory arbitrage – race to the bottom. Globalization and Consolidation of Markets Movement towards global market/regulator Cross-border mergers and conflicts between sovereign regulators Demutualization of Markets Primary conflicts between for-profit exchanges and regulators Implications for shareholders vs. investor interests

Page 14 Pension Trustee Code Conduct of Pension Fund Trustees Conflicts of interest Competence Due Diligence Fiduciary Duty & Delegation Personal Travel and Gifts

Page 15 Executive Compensation Supplement to the CG Manual Explains common practices and the ways firms report compensation. Assists investors in dissecting the realities of the firm’s current reporting. Covers cash, pensions, deferrals, options, and perks.

Page 16 Other Ideas in the Making Model RFP for Small Institutional & Individual Investors Standards for Investment Consultants Fixed-Income Trading Guidelines Mutual Fund Governance Reform Proxy Access - Issues & Solutions XBRL Tracking and Education Hedge Fund Self-regulation

Financial Market Integrity Index

Page 18 Financial Market Integrity Index Index of Member Sentiment Focus - trends in member sentiment over time Aggregate opinions of CFA members worldwide Major Financial markets covered Members rate ethical behavior of: –Sell-side analysts, corporate boards & management, investment managers, hedge fund & private equity professionals Members assess: –Corporate governance, regulatory protections, legal protection of shareholders, financial transparency

Page 19 United States – FMI Index Confidence in Ethical Behavior of US Market Participants & in Market Protections Non-US have higher confidence than US in integrity of both participants & protections in the US markets. Market Protections trusted more than participants. Confidence lowest in hedge fund/private equity professionals. Ethics of corporate boards & execs seen as less than adequate. Money managers, followed by sell-side analysts rated most ethical. “…many players have high ethical standards, [but] the impact of those who do not is disproportionate…”

Page 20 United Kingdom – FMI Index Confidence in Ethical Behavior of UK Market Participants & in UK Market Protections Unlike US & Canada, UK participants have more confidence in integrity of both professionals & market protections than non-UK participants. In US, behavior of market participants were less that adequate; in Canada market protections were less than adequate; but in UK both were trusted. Like US & Canada, confidence lowest in hedge fund/private equity professionals – in fact the only area that was less that adequate Like US & Canada, money managers, followed by sell-side analysts rated most ethical.

APAC Advocacy issues

Page 22 APAC Advocacy Activities/ Issues Ethics Training Program Shareholder activism – an article in Sept CFA magazine China Corporate Governance Survey Study on Executive Compensation disclosures GIPS adoption CFA Institute Centre documents translated into Japanese, Mandarin, Thai languages Thai Stock Exchange adopts CG Manual