- CFA Exams
- CFA Level I Exam
- Study Session 1. Ethical and Professional Standards
- Reading 2. Guidance for Standards I-VII
- Subject 5. Standard II (A) Material Nonpublic Information
CFA Practice Question
There are 291 practice questions for this study session.
CFA Practice Question
Luis Stark, CFA, is employed in the Merger and Acquisitions Department of an investment company. His friend, Elizabeth Mackie, CFA, is a portfolio manager in the Investment Management Department of the same company. Stark is helping a client acquire Gamma Corporation. According to CFA Institute's Standards of Professional Conduct, which of the following is the most appropriate action to take involving communication between the two departments?
A. The investment company must add Gamma Corporation to its list of stocks that cannot be added to portfolios managed by employees of the investment company.
B. The investment company should build a "Chinese Wall" between the Merger and Acquisitions Department and the Investment Management Department.
C. Stark may tell Mackie about the pending merger if Mackie promises in advance not to use this information to help make her investment decision about Gamma Corporation.
Explanation: The investment company should build a "Chinese Wall" between the Merger and Acquisitions Department and the Investment Management Department.
User Contributed Comments 9
|coops||The restricted list is more effective than the fire wall becuase there is no possibility of trading on M&A information.|
|nike||The portfolio manager is not prohibited from trading the stocks of Gamma Corporation. They just cannot communicate about the issue. Therefore, fire wall is the best approach.|
|volkovv||"Chinese Wall" threw me off big time, I thought they are being facetious. I was looking for the choice talking about fire wal...|
|vasula||Not necessary to NOT communicate. ie: Should not be traded in IF based on non-public material information. And prohibition by way of Restricted lists and watch lists are common.|
|jmcarr02||I don't think 'Chinese Wall' is an exact synonym of 'firewall'.|
In business, a Chinese Wall or firewall is an information barrier implemented within a firm to separate and isolate persons who make investment decisions from persons who are privy to undisclosed material information which may influence those decisions. This is a way of avoiding conflict of interest problems.
|yokok||Chinese wall and firewall are not exactly the same.
Chinese wall: divisional barrier within an entity (example: wall b/t IBD and Research Dept of the same company)
Firewall: barrier b/t entities of related companies (example. wall b/t a securities firm and a bank that are both under the same holding company)
|peteypete||if there is a firewall coops than the information wouldn't get to the traders in the first place.|
|bodduna||"Chinese wall" LoL. It threw me off. I did not even consider that choice.|