CFA Practice Question

There are 361 practice questions for this study session.

CFA Practice Question

You participate in a conference call for analysts following XYZ. During the call, the CEO of the firm reveals that EPS will be 20% below previous expectations.

A. You should refrain from trading until the information is more broadly disseminated.
B. You should inform clients with a position in XYZ as soon as possible.
C. You can never trade on this information because it is inside information.
Correct Answer: A

The participants in the conference call would be viewed as a select group. The SEC expects that management will be careful not to disclose information which has not been previously disseminated to a select group. The Standards require that CFA Institute's members refrain from trading on information released to a select group before that information is more broadly disseminated.

User Contributed Comments 21

User Comment
kalps Participants = select gorup, therefore should refrain from acting on this information
eheinzer I thought a conference call for analysts is public? That was mentioned in answers before?
suzc I also taught a conference call for analysts is public?
fuller it's not public as only selected people know the news, not the general public.
examinee But the selected people represent the public. In most questions if info is disemminate in calls it is treated as public.
Arron Conference call for Analysts is public, I think.
TheProfet While I do agree that there can be confusion surrounding the fact pattern, I find it hard to accept a 'group of analysts' as being representative of the public. I think that 'A' has to be the best answer simply because (1) the 20% shortfall in EPS is material and (2) if the everyday investor (i.e., someone who watches CNBC or gets WSJ email news flashes) doesn't know this information, the analyst that knows this information cannot trade, or cause others to trade using such information.
DonDon What about C? The information is still non-public material information.
Slothrop The official CFA material says, "Analysts must be aware that a disclosure made to a room full of analysts does not necessarily make the disclosed information "public".
MattyBo Slothrop is right. Room full of analysts does not constitute the "public" per CFA material.
xcye QUARTERLY conference call for analysts is public because this is the earnings call that every public company conducts. Just a conference call for analysts might not be necessary public.
Yurik74 DonDon - also thaought about C but never is too much, I think. When info becomes public - you may trade
midwest i agree with xcye. although quarterly conference calls are public information and are widely available via most financial websites or directly through the company's website, the questions specifically states "conference call for analysts", which would make selection A the best answer. however, if anywhere in the question, it stated "public" conference call, i would think that C would be acceptable.
ggupta Yes, Conference Call for any specific group is considered non public information ..
wundac Thanks xcye for clarifying the issue of public versus non public. Makes sense now.
AUAU How about "never trade" in "C"???
It may be trade after made public.
ljamieson Don't do anything until you see it on the 6pm news is a little rediculous.
josie491 Need to understand the definition of "broadly disseminated"
- does this mean that when it is released publicly? or "broadly disseminate" to other analysts - which mean information is still non-public.
raffrobb A drop in 20% EPS! Better hope its widely disseminated real soon. BTW, I got that one on fist try. Getting the BEST Ethics answer can be dicey. I almost picked C.
dbedford I think the definition of material is also defined by who is giving the info. In a prior question a rep who may be far down the food chain gave the info to the CFA = not necessarily material because investors arent likely to act on what a rep said to be true, but on the other hand as in this case, if the CEO says it then people are definitely going to buy or sell on that.

This isnt, in my mind, about the analyst conference call being public or not, but who is saying it and whether investors are likely to act based on who said it.
UcheSam The phrase “..more broadly disseminated” sold me out to choosing option C, although it is the wrong option on further review. However, I should have known that “never” in option C is too weighty as the information can be traded on when made public. As a pointer, the person desseminating information to Analysts either at quarterly call or any other call seriously determines whether the passed information is public or non-public. If it is the CEO or CFO, it tends to be non-public information. If it is a public relation representative (or any other in such capacity) of the issuing company, then it tends to be public information.
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