Ethics in Investment Management Essay

There are two ethical conflicts that are described in this case. Firstly, Joy Chen who trades Xydeo stock for Omega was supposed to execute a significant number of principal riskless transactions for the institutional and retail clients at the cost of $25.00 per share. However, when Chen was processing the client buy orders totaling to 500,000 shares, the new system that was put in place automatically applied the best-publicized price in the market which was $25.01. Secondly, Adolfo Garcia who is Smith's young brother-in-law is interested in investing as a CFA candidate and is colluding with Smith who is a third-party-broker-dealer and trades with Omega to make the transactions that favor them in the course of conducting their business operations in the market.

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Smith is wrongly using his position to influence the ways in which Garcia invests as a CFA candidate by talking to him every morning about the previous day's events and placing the call on loudspeaker by the end of their conversation so as to hear Omega's squawk box. Garcia listens to the Omega analysts discuss the various changes in ratings, capital market developments, and economic factors. It is an issue that works in his favor as he frequently places large block orders for low-priced small-capitalization stocks at the market price and once the new system is operations, Smith processes the orders by delaying the execution of portions of the orders thus allowing Garcia to enjoy better price in the market.

The stakeholders that are affected by these conflicts are both the customers and the large financial services firm like Omega. In the first case, the firm's new order-handling system makes customer to pay for extra cash per share when it automatically changed to apply the best-publicized price in the market. The conflict could result in customers avoiding to purchase the shares form the firm once they detect that the company is exploiting them. In the second scenario, both Smith and Garcia have mastered the art of analyzing the ways in which the financial services firms operate in the market and placing the orders so as to maximize profits out of it. As an employee of Omega firm, Smith is engaging in unethical conducts that are not allowed by the firm in the course of conducting its deals in the market. As a result of this conflict, the business is likely to incur more losses thus losing its revenues in the market.

The appropriate process that the persons involved in the first conflict should take is that Chen needs to report the scenario regarding the new order-handling system changing automatically to Xavier Brown. It is in such ways that Brown would order for the programmers to amicably correct the problems and run the tests and simulations. Also, the client who was affected by the system while buying the share need to be informed of the problem and the necessary compensation for the extra costs he had incurred be made (Mintz, 2018). In the second case, Smith needs to uphold integrity and be professional in the ways he conducts his duties as opposed to colluding with Garcia to use the loopholes of the company to enrich his brother-in-law.

Conclusion

Supposing that the steps described above are not taken then the consequences of the conflicts would be detrimental as the firm would end up losing its clients while at the same time people like Garcia and Smith would make huge profits from its operations. As a result, this would lead to enormous losses on the company and the industry as a whole making.

Reference

Mintz, S. L. (2018). Issue: Ethics and Financial Services Ethics and Financial Services.