- CFA Exams
- CFA Level I Exam
- Topic 10. Ethical and Professional Standards
- Learning Module 71. Guidance for Standards I-VII
- Subject 5. Standard II (A) Material Nonpublic Information
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
|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??|