Ethics in Finance

1. Dr S V K

2. What isEthicsinfinance
 Ethics in finance is mean that bifurcate what is
right and wrong in context of financial matter.
 The assumption of modern financial-economic
theory runs counter to the ideas of honesty,
devotion, dependability and loyalty.
 Peoples who involved in finance activity have to
serve both their company and their customers at
utmost good faith.

3. Financialsectorin India
REGULATION:
RBI, SEBI,FMC, IRDA, MoF, HLCC, PFRDA.
MARKETS:
Commodities, equities, debts,foreign exchange
Players:
Brokers, firms, banks, financial institutions, FII, mutual fund
manager, investor, exchange, depository, registrar, custodian.

4. Issue in financial services:
 Deception
 Concealment
 Churning
 Unsuitable
 Twisting
 Flipping

5. Ethicalissue in finance
Ethics in finance in define in three board theme:
In financial markets
In financial service industry( including banking &
insurance company)
In financial people in organization

6. Infinancial markets
Frauds in relation to financial
market
Legal authority define fraud as
a crime that involve
dishonest or
conduct in order
some unjust
over someone
use of
deceitful
to obtain
advantage
else.”
security related
 e.g. credit card fraud,
fraud,
identify related frauds etc.
insider trading
Insider trading refers generally
to buying and selling a security,
in breach of fiduciary duty or
other relationships of trust and
confidence, while in possession
of material , non public
information about the security.

7. Hostile Takeovers

8. What is
Takeover???
A takeover is virtually the same as an
acquisition.
The term acquisition under SEBI Takeover
Regulations is defined
as
“ directly or indirectly, acquiring or agreeing
to acquire shares or voting rights in, or
control over, a target company”
8

9. Kinds of
Takeover
Friendly
or Negotiated
Takeover
9
Hostile
Takeover

10. Hostile Takeover
10
A takeover would be considered "hostile" if
• the board rejects the offer, but the bidder continues
to pursue it, or If the bidder makes the offer without
informing the board beforehand.

11. Designing a Hostile Takeover
11
Organize Yourself
Understand your
Target
Evaluate Legal Pitfalls
Build backup
Disarm Defenses

12. FINANCIAL ENGINEERING

13. DEFINITION
Financial engineering involves the design, the
development and the implementation of
innovative financial instruments and processes,
and the formulation of creative solutions to
problems in finance. - John Finnerty

14. Process
Identification of need
Initial sketch of Product Complex Model
Building Exercise
Testing of the product
Perfect product on the basis of the exercise
Pricing of the Product
Restructuring of the product Test
Marketing
Launching of the Product

15. Equal information:
“level playing field”
requires not only that
everyone plays by the
same rules, but also that
they be equally equipped
to compete.
Equal bargaining power
agreements reached by
arm’s length bargaining are
considered to be fair,
whatever the actual outcome.

16. Efficientpricing
 A fundamental markets includes efficient
prices that reasonable securities should
reflect their underlying value.

17. Stakeholder interest v/s Stockholder interest
shareholder own a share of company so its known
as owner of company.
stakeholder have an interest in company but do not
own it ( such as customer, government etc.)
so both party have different objective so they come
into conflicts .
such as shareholder wants short term profit where as
stakeholder desire tend to cost money and reduce the
profits.

18. campaignfinance
 A movement, fueled in recent decades by political
candidates' increasing dependence on expensive
television advertisements, to restrict the amount
of money that individuals and interest groups can
contribute to political campaigns.

19. Ethicsin financialservice
 financial service professionals job and mission is
to enable clients to grow and protect their wealth.
 The financial services industry is also highly
regulated. regulation minimize the fraud, theft &
misuse. Ethics set the standard of excellence for
professionals in financial services.

20. Example of unethical temptations
offer a customer an authorized “gift” in return
for their business.
put on non business expenses to related expenses.
conceal the information from customer in order
to get their business and to meet your sales’ goals.
etc….

21. Risk Management
Risk management is a process for making and
carrying out decisions designed to minimize the
adverse effects of accidental or business losses on
an organization by reducing the number or size of
these losses or by cost effectively financing
recovery from any such losses.

22. Ethics in Bankruptcy
• Bankruptcy is a legal process through which
people or other entities who cannot repay debts to
creditors may seek relief from some or all of their
debts. In most jurisdictions, bankruptcy is imposed
by a court order, often initiated by the debtor.

23. Code of EthicsinFinance
 Act with honesty and integrity
 To provide information which
is full, fair, accurate,
complete, objective, relevant,
timely and understandable etc.
 Act in accordance with all
applicable laws, rules and
regulations of governments,
and other appropriate private
and public regulatory
agencies.
 To promote ethical behavior
among our associates.
 Respect the confidentiality of
information.
 Act in good faith,
responsibly, with due care,
competence and carefulness,
without misrepresenting
material factor allowing my
independent judgment to
be subordinated
 Adhere to and promote this
Code of Ethics

24. How to improve ethicsbehavior
 improving standard
 weak links
 Pledging of shares
 Auditor’s role
 institutional investors
 compressive laws