- CFA Exams
- CFA Level I Exam
- Study Session 1. Ethical and Professional Standards
- Reading 3. Guidance for Standards I-VII
- Subject 8. Standard III (B) Fair Dealing
CFA Practice Question
There are 361 practice questions for this study session.
CFA Practice Question
Joshua Charlton, CFA, is the Managing Director for Business Development at Skogland Financial (SF), a large U.S.-based mutual fund organization. In order to secure business from a large hedge fund manager based in Asia, Charlton recently approved flexible terms for the fund's client agreement. To allow for time zone differences, the agreement permits the hedge fund to trade in all of SF's mutual funds six hours after the close of U.S. markets. Did Charlton violate any CFA Institute Standards of Professional Conduct?
A. Yes, with regard to Fair Dealing.
B. Yes, with regard to Fair Dealing and Material Nonpublic Information.
Explanation: Clients should be treated fairly and impartially. The flexible trading terms allow the hedge fund manager to enrich himself and is a violation of "Material Nonpublic Information", concerning trading on material nonpublic information. This situation also presents a conflict of interest.
User Contributed Comments 8
|rbernier09||Please explain how material non-public information is included in this solution.|
|vrutikap||To be allowed to trade after market close means that the client is aware of the closing prices of stocks, which other clients are not privy to.|
|farhan92||interesting...I selected C on the premise that clients being treated fairly doesn't mean equally.
To avoid the violation the employee at the hedge fund would have to work unsociable hours and neglect his/her kids ! Think about the kids man!
|ayush14112||everyone is aware of the closing prices. someone pls explain the violation.|
|hon132||New info can be found after hours but prices are set at their closing price. I'm guessing they consider everything found but has yet to be traded on "material and nonpublic"|
|kek01||still not convinced about the Material Non-Public Info violation. Even if it's presented after hours (and others cannot act on it) the info is still public, no?|
|Swoods2||Having a hard time understanding this scenario in practical terms. What is meant by "flexible terms" and why is this a benefit?|
|b25331||Flexible terms could be anything and "recently" could be any time period So in my view the writer of the solution is speculating.|