CFA Practice Question

CFA Practice Question

Chris Laury, CFA, is a stock analyst at a large multinational bank trust department. A cash tender offer was announced by a company whose stock was held by Laury's employer as well as by his father. Under the terms of the offer, the first million shares tendered would be accepted in full at $28 a share (which was 20% above the existing market) and the next one million shares on a pro rata basis also at $28 a share. Laury immediately called his father with the news but waited a few days to tender holdings of the trust department.

The above situation violated which Standard?
A. Fair Dealing.
B. Priority of Transactions.
C. Duty to Employer.
Explanation: Laury violated Standard VI (B) - Priority of Transactions by placing his father's financial interest above his employer's. As on of the first million sellers, Laury's father will receive $28 a share for all his shares, whereas, because of the delay in receiving information, Laury's employer may receive $28 a share only for a portion of its holding.

User Contributed Comments 13

User Comment
ahan I don't knwo if it correct. To me "fair dealing" is more appropriate since Laury desseminated the information not fairly. There was no transaction involved yet. The line between thest two is not very clear to me in this quesiton.
KD101 I agree with ahan - Fair dealings is violated than priority of transactions as there was no transaction for her father
quincy the answer is correct. Fair Dealing refers to dealing with all clients faily.
quincy this case refers to putting personal interest above or prior to employer/clients, so it violated Priority of Transactions. Plus it didn't say her father is one of her company's client, so has nothing to do with Fair Dealing.
jayjunk Isn't "Duty to Employer" also violated?
nike but exactly which one of Duties to Employers?
wollogo You could look at the decision to delay the tender for the clients as being the equivalent of a transaction i.e. this is an active decision. This is why priority of transactions is more relevant here.
Mago C is also correct but B is more correct.
Analizer I disagree with those who suggest that "fair dealing" is an appropriate answer. Inthe question, Laury should seek his employer's interest rather than that of an immediate family member-his father. In addition, there is no indication in the question that the firm's clients were involved in which case those for which the scenario is suited should all have been informed. The situation given, is one between Laury's employer and her father, not the firm's clients.
u0302638 Hi Analizer:
I dont think Laury should seek his employer's interest 1st. Client interest must always come 1st.
Whether or not this piece of info is suitable for all clients at the firm is out of scope of this question.

Fair dealing regards providing investment analysis, investment action and other professional activies, which is clearly wat happens in the question : Share the news

I believe priority of transaction is about trade execution in the following orders: Clien, Employer, Self
lanhuongnguyen i think this question is not clear, if his father is a client that is fair dealing problem, if not that is prior transaction problem. With no information, it makes me confuse when choose the answer...anyway i agree with fair dealing
Merke Do we assume that her father is the company's client? If it does say so then he is not.
chandsingh Yeah, if the father is a client - clearly fair dealing - and since not stated i guess we have to opt for the most suitable answer.
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