- 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
Jeremy Gotes is an analyst at a large brokerage house. Jeremy receives a call from company KLJ informing him that they are about to launch a new product that will increase sales dramatically. This news has already been presented to a group of analysts at a meeting held last week. Jeremy writes a report recommending this stock to all of his clients. Has Jeremy violated the Standards of Professional Conduct?
A. Yes, because he used material non-public information.
C. Yes, because he did not consult with his supervisor prior to issuing the opinion.
Explanation: Jeremy used material non-public information.
Jeremy did not violate the Standards because he did not consult with his supervisor prior to issuing the opinion; this is not a specific violation of the Standards.
Jeremy did not violate the Standards because he should have first communicated the recommendation to the firm's larger clients ahead of the smaller clients. A member must never first communicate recommendations to the firm's larger clients ahead of the smaller clients.
User Contributed Comments 12
|jacoby||Although the information was released to a group of analysts, this does not make it public information as it has not been disseminated to the marketplace in general (p.145 of Handbook). So yes, violation.|
|sexy||Information is not public until disseminated to the marketplace in general. Disclosure to analysts does not constitute public discloser.|
|Yooo||Jeremy has traded using material non-public information.|
|Done||Jacoby is Right!!!|
|achu||Answer to question as written is correct, but I think would be unlikely to occur in REAL life. Most companies would be afraid to have "coffee clotch" type meetings with analysts only. This is why many companies relase earnings and have teleconferences where anyone can dial in- wheter analysts or independent investors- and thus release information 'to the market.'|
|vasula||Answer is correct ONLY (i guess) because it is not expressly told to us that ALTHOUGH an analyst meeting had been given that the infomation was also released to the 'public' at any point? However, as it was told ONE week ago one could assume that it ought have been. So the question in REAL life would be then IS the ONUS on the analyst then ..He received the call(thus did not initiate contact) from the company who disseminates information to question the company if they had also made a public press release? whether this call is only to him etc etc??
|DashingDude||Isnt he allowed based on Mosaic Theory?|
|ml42085||no because it's material non-public information|
|vi2009||Tricky! Yes, presented to a group of analysts but not to the general public ... has to be to the general public!!!|
|malawyer||because he did not trade because of the info but he DISSEMINATES the info in his recommendation - this is the recommended procedure of CFA institute!
Source: CFA Book 1, page 39: "make reasonable effort to dissemenate". However, I agree that there would be a step in between (as in Example 6 on p.43) that the subject company should disseminate it first.
|tomalot||Hey Sexy, get in touch.........|
|farhan92||interesting..but wouldn't he have reasonable expectation to believe the information had been disseminated based on the meeting being held about a week ago...|