CFA Practice Question

There are 356 practice questions for this topic.

CFA Practice Question

Mr. A is planning to sell his company via a proposed tender at a very high price. He informs his sister, who works at the company. His sister informs her husband and her husband informs Mr. S, who is a broker who trades on this information. Who has violated Standard II(A) Material Non-public information?
A. Mr. A and Mr. S
B. Mr. S
C. Mr. A's sister's husband
Explanation: Mr. S has violated this standard, since he was trading on "tender" information.

User Contributed Comments 23

User Comment
Praba Basically both S and his sister violated the lawa
tengo I do not get it. Some person amy have violated the law. But is the broker subject to the CFA standard if he is not seeking or have the CFA credential. I think the standard may not apply to him only the law applies.
BADGUY tengo which law are you talking about?the broker shouldn't have acted on the information as long as it was in relation to a tender offer.the oher conditions were not breached.
wollogo The question is whether the standard has been breached, it doesn't matter whether the broker uses the CFA designation or not.
eris what about MR. A? Isn't he in violation for telling his siter?
DAS11 Mr. S is the one that traded on tender information, therefore he is in violation
Bibhu The question should read Mr. S,CFA. Then the answer makes sense.
nmirza should the husband also be in violation of law? while i agree with explanation above, i just did anohter quesiton like this 5 questions back, regarding tender offer, ceo tells sister who tells husband who tells broken and it said broker AND husband violated the law!! someone explain
lagoste doesn't the position of his sister in the company matters? if Mr. A's sister is for example an intern in the company, shouldn't Mr. A also violated the standard??
volkovv The person who acts on the material non-public information violates the standard, and that person doesn't have to be a CFA. People who share the information like A, his sister, and the sister's husband are not in violation since they didn't act on the information. The other way to think of it is, lets say everybody would possess material non-public information but noone acts on it, than it wouldn't be a problem but as soon as someone uses this information ti his advantage than its become a problem.
octavianus In the previous question some are referring to, the person that leaked the information to the broker who subsequently traded on the information profited from the trade transacted by the broker. Thus, the broker and the broker's client (who leaked the info to the broker) were in violation.

In this question, the husband who leaked the info to the broker is not said to benefit from the broker's transaction and is thus not in violation.
lakshi Aren't Mr. A, his sister and the husband also in violation, or is it only the person who acts on it?
TammTamm Person who acts on the info: Mr. S
hannovanwyk but what if you cause someone to act on it?
Extraneus The Standard is violated not just when you act on material non public information but also when you cause others to act on it.

Mr. A is in violation because he did not keep this information with himself, his sister is in violation for the same reason and his brother in law is in violation because he not only further leaked the information but also caused someone else to act on the information.

The broker is beyond doubt in violation because he has traded on this info.

All persons unless specified are assumed to be bound by CFA Institute Code and Standards.
analystz @Extranus - passing on rumors or gossip or whatever is not a violation. Gaining monetary benefit from it IS.
Deadmau5 Key Word, "is planning"; therefore, could be a rumor
BladeMage3 @Analystz: The standard quite clearly states that you are in violation if you cause others to act on material nonpublic information, OR if you act on material nonpublic information.
rjdelong Hot debate... simply put you are to assume every person is a CFA member unless explicitly stated otherwise. Also the question specifically asks about this standard not ANY standard. Mr. A, might have broken another standard of confidentiality, but I believe not, his sister works at the company so the information although sensitive is reasonable to disclose to her for other reasons than to trade off of the information. Mr. A is clean in this case.
hon132 Mr. A is the guy who owns the company and is making the related decision. It's more about revealing company secrets on his part and goes into insider trading. Mr. S is the one actually making investments on the secrets.
carlo_it mr s trade on the information no one else (sister husba d
MonuPanda Members and Candidates who possess material nonpublic information that could affect the value of an investment must not act or cause others to act on the information.

The answer is correct because it is the broker that has acted.Here the husband has just leaked the insider info but he has no where said his broker to buy the shares.So it can be said that the husband has not caused the broker to buy the shares.
walterli maybe only the one who has fiduciary relationship with clients??
You need to log in first to add your comment.