- CFA Exams
- CFA Level I Exam
- Study Session 1. Ethical and Professional Standards
- Reading 3. Guidance for Standards I-VII
- Subject 19. Standard VI (B) Priority of Transactions
CFA Practice Question
There are 361 practice questions for this study session.
CFA Practice Question
Janet Ver is a portfolio manager managing large institutional clients. Janet does not act on a sale recommendation from the firm's equity division until she has sold her personal holding in the stock. Once she has sold her personal holding, she will sell the stock from her institutional clients' portfolios. Has Janet violated CFA Institute's Standards of Professional Conduct per Standard VI (B) Priority of Transactions?
A. No, since she is allowed to sell her stock before her clients'.
B. Yes, since her early sale could result in losses to her clients.
C. Yes, since her early sale is not an ethical practice.
User Contributed Comments 13
|robbe1||The issue deals with putting the client's interests first, which is an ethical matter. In addition, even though it's likely that her behaviour will result in losses for the client, this not necessarily always the case.|
|MGM13||I agree that her early sale will not automatically results in client losses. On that basis, the last hoice is more correct.|
|panghom||I agree with robbe1 because "profits" or "losses" from the trading of clients is not the point of the priority of transaction. The point is the client's interest must be come first. I mean the answer B is one of outcomes and is to be subset of the answer C, so that C should be more correct.|
|kamal3r||C has to be the correct answer because it is unethical to trade own shares first while ignoring the interest of the clients. Profit / Loss is immaterial because the analyst could be wrong in her analysis. Could the action then be justified ? No.|
|silversurfer||The ethical part should be the area in question and she did not act ethically, even in the priority of transactions for clients section.|
|Kuki||kamal3r hit the right point. Even if her early sales DO infact result in a profit for her clients her actions CANNOT be justified. I got it wrong btw..Thanks kamal3r...good explanation|
|annwwar||BUT...looking at it in a different way, the reason it is unethical is because of the possibility of losses for client. If there were no possible losses, and only gains from this behaviour then there would be no problem! and the behaviour would be encouraged!|
|dblueroom||not really. she shouldn't have traded before her client, which is the key. client interest comes first, her action could possibly disadvantage her client. I don't really like C, but the other two are not good enough.|
|janis36||it says "could result", which sounds right to me.|
|myron||janis36: you missed the point here. It's not about gains/losses. It's about priority between yourself and your clients.|
|harrybay||Yeah but the only reason this priority is established in the first place is to avoid causing losses to the client.|
|Swoods2||The standard relating to priority of transactions is "the more correct" answer. From that standard: "Client interests have priority. Client transactions must take precedence over transactions made on behalf of the member's firm or personal transactions." "It's not ethical" is way too vague.|
|sevywonder||@Swoods2 right, I seriously doubt they would word it that way on the test|