CFA Practice Question

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CFA Practice Question

You meet a friend for lunch. He tells you that his firm, XYZ, has just landed a government contract that will double its revenues. This will be announced at a news conference tomorrow.

I. You should advise clients to buy the stock as soon as you return to the office.
II. You should encourage your friend to disclose this information immediately.
III. You should refrain from trading on the information until it is publicly released.
A. II and III
B. I and III
C. III only

User Contributed Comments 16

User Comment
yanpz What a logic it is if news from wife hearing from another company CEO's wife is ok to be traded on, but news from a friends is not ok to be traded on... Why? If "friend" break come duty, then how about CEO's wife?
mbuechs2 Why not II?
jgelfand The code says (I quote): "Members shall make reasonable efforts to achieve public dissemination of material nonpublic information disclosed in breach of duty"...It makes II and III correct
hagi10 well, I think the logic is, his friend might not be in a position in the firm to disclose the information to the public.
frcfa II is not clear. What position should the friend in XYZ hold to be encouraged to disclose the info?
mtcfa I'm confused on the whole "breach of duty" thing. Is it the analysts duty, or the friend's duty? If XYZ Firm was a client of the analyst's firm, then would their possibly be a breach of duty?
Done I guess because the time frame is very short, the market will close in 4 hours, and the information will be publicly released tomorrow C is the only answer
hizmo Answer is III because he works for XYZ.
xtrailer I think II is incorrect because the material non-public information is planned to be released tomorrow. If there was no plan to release this information, the friend could be encouraged to make it public.
SueLiu I agree with xtrailer, there should be no push for disclosure today if it is going to be announced tomorrow.
krisscfa oohh...I got....the key is ''going to be announced tomorrow.'' option II becomes void.....
lanhuongnguyen good explanation xtrailer
gill15 You dont want to disclose information to one person. You want simultaneous super duper dissemination
endurance Two issues of notice here. First, Analystnotes is using a similar situation in the LOS, see example 1. Here they argue, that we should encourage to disclose information.

Secondly, you may be forced to make preannouncements of material nonpublic information no matter what the schedule indicates (i.e. published tomorrow), which may be the case here.

III is correct, but II is also correct
rjdelong @endurance, the difference in the LOS example and this one is positive news on sales in this question vs bad / hidden news in the example in LOS, bad news needs to be encouraged to be disclosed bc no one wants bad news leaked. Encouraging good news to be leaked sooner is unethical because it is trying to gain advantage ahead of the planned (and more widely followed / disseminated) press conference.
ashish100 lotta opinions over here.
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