CFA Practice Question

CFA Practice Question

Ben Thomas, CFA is a portfolio manager for KLT Inc. He believes that the shares of ADF Enterprises are underpriced, and accordingly purchases ADF shares for his clients. He follows up by purchasing ADF shares for his own account. A month goes by, and ADF announces the introduction of a new product. Thomas feels that this will significantly increase ADF's revenues and profits, and does more research on the new product. Based on his research, Thomas purchases more shares of ADF, followed by purchases for his own account. Has Thomas violated the Standards?
A. Yes, Priority of Transactions.
B. Yes, Diligence and Reasonable Basis.
C. No.
Explanation: Trades should be made for clients first, after which there is no prohibition for the employee to trade on his own account.

User Contributed Comments 5

User Comment
thecfaguy How can he make a purchase based on 'belief' ? Shouldn't he have done a due diligence ?
dakota6789 It says he does more research, and based on the research he buys it. That's due diligence.
michaeloa3 There's no mention of him performing due diligence initially, just says that he "believes that the shares of ADF are underpriced". Seems like there is a violation of Diligence and REasonable basis initially.
donaldsce What's wrong with priority when he bought for his clients first?
harrybay Whether you do due diligence or not if you think a stock is undervalued it's still based on belief. And if you've researched companies before it's hard to have any belief if you haven't done your research.
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