- CFA Exams
- CFA Level I Exam
- Study Session 1. Ethical and Professional Standards
- Reading 3. Guidance for Standards I-VII
- Subject 8. Standard III (B) Fair Dealing
CFA Practice Question
There are 361 practice questions for this study session.
CFA Practice Question
Lionel Lir is an analyst at a large brokerage house. He has just found out that company JHT is planning to buy company TYP, and is planning to pay a large premium on the current price. He immediately purchases a large block of TYP stock for himself as well as for other select clients. Which standards of professional conduct has Lionel violated?
A. Lionel has not violated the standards since the deal may not actually go through.
B. Lionel has violated the standards since he should have informed all the firm's clients of the information he had in his possession.
C. Lionel has violated the Standard of Fair Dealing.
Explanation: Any recommendation made by the member must be disseminated in such a manner that all clients have a fair opportunity to act on the information.
User Contributed Comments 12
|yanpz||Should he inform all the clients?|
|snider||he does not need to inform all the firm's clients, as the information is not appropriate for ALL of them. Think about this: if you are a client of an investment firm, and such a firm receives thousands of investment information every day. Do you want to receive all these information every day? Obviously not. You are interested in the information that's suitable to your investment needs.|
|Rguerra||Snider, good one. It refers to a tender offer (without clearly saying it is a tender offer). In absolutely no way you can trade on a tender offer inside info.|
|Duggu||Actually an analyst shall send a search report before trading on a stock.|
|aem078||The best answer is "fair dealing" simply because it asks "which standard has been violated" and the answer lists the standard of fair dealing|
|mtcfa||I think the real violation is that of STandard IIA, trading on material non-public info that relates to a tender offer.|
|nike||how do you know it's material and non-public? "He has just found out" does not imply that: he might find this through his research, mosiac theory, whatever. The point here is that he should treat all clients fairly.|
|MUSK||Nike, Your point is excellent, this argument coupled with aem's will answer everyone else's querries|
|peteypete||agree with aem078...it violates a standard and the only standard is the fair dealing one. if it asks for "which standard" than thats the answer. never use what if when doing multiple choice it just screws you up, use what you got.|
|Shaan23||Guys. The standard is Fair Dealing and fair dealing encompasses the second answer - simultaneous disemination with investment recommendations.|
|nguyenluan||"as well as for other select clients". So he did not treat all of his clients equally and fairly.|
|sunday128||Nguyenluan is correct. It should have been client first them himself.|