- CFA Exams
- CFA Level I Exam
- Topic 10. Ethical and Professional Standards
- Learning Module 3. Guidance for Standards I-VII
- Subject 5. Standard II (A) Material Nonpublic Information
CFA Practice Question
Which one of the following statements about material non-public information is incorrect?
B. A member may create and use material non-public information as long as the information is constructed from publicly available information or the information is constructed from non-material information.
C. An analyst will violate the above mentioned standard of professional conduct if he makes use of the "mosaic theory."
A. Restricting personal and proprietary trading will assist members in complying with the above-mentioned standard of professional conduct.
B. A member may create and use material non-public information as long as the information is constructed from publicly available information or the information is constructed from non-material information.
C. An analyst will violate the above mentioned standard of professional conduct if he makes use of the "mosaic theory."
Correct Answer: C
Insider trading should not result when a perceptive analyst reaches a conclusion about a corporate action through analysis of public information and items of non-material non-public information (a "mosaic" of information).
Statements A and B are correct statements relating to insider trading.
User Contributed Comments 6
| User | Comment |
|---|---|
| 0is4eva | The other statements are related to material non-public information or inside information, standard II A. Remains the last statement. "An analyst will violate the above mentioned STANDARD OF PROFESSIONAL CONDUCT if he makes use of the MOSAIC THEORY. Mosaic theory belongs to standard II A but conduct seems to belong to standard I D or VII A (?). Thus it is incorrect. |
| hmichta | Although I agree on the correct answer, I think your reasoning may be wrong, 0is4eva. According to me, the standard of professional conduct answer C refers to is the one mentioned in the question, namely standard II(A): material non-public information. The CFA-book clearly states that the mosaic theory can be used to derive material non-public information. Hence, an analyst using it is not in violation of the code of conduct concerning material non-public information, making statement C incorrect. I don't believe the word 'conduct' in the answer reflects a reference to another professional standard, but only to the use of non-material public info. Just my two cents :) |
| andyblake | I agree with hmichta on this one!!! |
| Shaan23 | Isnt A incorrect as well. Says prohibition of all types of proprietary trading is not appropriate in the CFA manual. |
| raffrobb | Mosaic Theory prohibits one of four combinations, which is Material and Non-Public...correct? |
| nathi_8 | raffrobb: that is precisely how i view it. |