CFA Practice Question

There are 361 practice questions for this study session.

CFA Practice Question

Callum Rakimov, CFA, a portfolio manager at Skogland Investment, calls a friend to join him for dinner. The friend, a financial analyst at Cyber Kinetics (CK) declines the invitation and explains that she is performing due diligence on Orca Electronics, a company CK is about to acquire. After the phone call, Rakimov searches the Internet for any news of the acquisition but finds nothing. Upon verifying that Orca is on Skogland's approved stock list, Rakimov purchases Orca's common stock and call options for selective Skogland clients. Two weeks later, CK announces its intention to acquire Orca. The next day, Rakimov sells all of the Orca securities, giving the fund a profit of $3 million. What action should Rakimov most likely have taken to avoid violating any CFA Institute Standards of Professional Conduct?
A. He should have refused to trade based on this information.
B. He should have purchased the stock and call options for all clients.
C. He should have traded only after analyzing the stock diligently and thoroughly.
Explanation: Members/candidates who possess material nonpublic information that could affect the value of an investment should not act or cause others to act on that information. Rakimov traded on the material information that Orca was about to be acquired by Cyber Kinetics. The information is non-public because it is not publicly available, which was verified when Rakimov researched Orca on the Internet and found nothing about the acquisition.

User Contributed Comments 2

User Comment
dquang225 Rakimov also violates Standard V(A) by not doing research on the stock carefully before making the transaction. C can be correct too
ashish100 ^ No it can't even if he did research on it. He would still be acting non public material information.
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