- CFA Exams
- CFA Level I Exam
- Study Session 1. Ethical and Professional Standards
- Reading 3. Guidance for Standards I-VII
- Subject 5. Standard II (A) Material Nonpublic Information
CFA Practice Question
While waiting in the business class lounge before boarding an airplane, Dale Broughton, CFA, an equity analyst, overhears a conversation by a group of senior managers, including members of the board, from a large publicly listed bank. The managers discuss staff changes necessary to accommodate their regional expansion plans. Broughton hears several staff names mentioned. Under what circumstances could Broughton most likely use this information when making an investment recommendation to his clients?
A. under no circumstances
B. if he does not breach the confidentiality of staff names
C. if the discussed changes are unlikely to affect the public perception of the bank
Explanation: A member or candidate cannot use material non-public information when making investment recommendations. The information overheard would not be considered material only if the staff likely to be terminated were not considered to be in influential positions, since any public announcement of their removal would be unlikely to move the share price of the bank, and if the regional expansion would not substantially impact the value of the bank.
User Contributed Comments 3
| User | Comment |
|---|---|
| jacojacobs | If the information is indeed unlikely to affect the public opinion of the bank, how will it be useful to his clients? If the information is indeed useful to his clients, logic suggests that it will indeed affect the public opinion of the bank. Rather avoid the situation by not using the info, I think... |
| Shauneps | This sounds to me like material, non-public information being discussed. |
| ctschro | members of the board discussing staff changes... usually relates to executives eg CEO, CFO, COO, etc... and a regional expansion as well... at that point idk if u could say that it would not affect the public perception of the bank. best practice would be to not even bother making that judgment call and abstain completely from disclosure or action based on that info. |