- CFA Exams
- CFA Level I Exam
- Study Session 1. Ethical and Professional Standards
- Reading 3. Guidance for Standards I-VII
- Subject 5. Standard II (A) Material Nonpublic Information
CFA Practice Question
Which one of the following statements about material non-public information is incorrect?
A. Restricting personal and proprietary trading will assist members in complying with the abovementioned standard of professional conduct.
B. A member may create and use material non-public information as long as the information is either constructed from publicly available information or non-material information.
C. An analyst will violate the above-mentioned standard of professional conduct if he makes use of the "mosaic theory."
Explanation: Insider trading should not result when a perceptive analyst reaches a conclusion about a corporate action through analysis of public information and items of non-material non-public information (that is, a "mosaic" of information).
User Contributed Comments 6
| User | Comment |
|---|---|
| xtrailer | CFA Institute recognizes Mosaic Theory and there is no violation if an analyst uses it. |
| teddajr | Under mosaic theory, financial analysts are free to act without risking liability |
| krisscfa | I dint see the word "incorrect" closely. |
| Hishy | For B, does carrying out the Mosaic Theory "create" Material and Non-Public Information? |
| gill15 | We're not supposed to restrict all proprietary trading. I didnt bother reading the other answers after A and chose that because of that.... I wouldn't be as lazy on the exam but still...we're not supposed to restrict proprietary unless certain circumstances arise.. |
| MTenaglia | A lesson in reading every word in the question |