CFA Practice Question

CFA Practice Question

Hillary Waters, CFA, is an investment analyst who has accumulated several pieces of nonpublic information through her contacts with drug firms. Although none of the information is material, Waters correctly concluded by analyzing the nonpublic information that the earnings of one of the drug firms would be unexpectedly high in the coming year. Under current U.S. law, Waters:
A. should urge the drug firm to make public dissemination of the information immediately.
B. can use the information to make investment recommendations and decisions.
C. may use the information, but only after approval from a compliance officer or supervisory analyst attesting to its non-materiality.
Explanation: Under the "mosaic theory", financial analysts may use significant conclusions derived from the analysis of public and nonmaterial information as the basis for investment recommendations and decisions even if those conclusions would have been material inside information had they been communicated directly to the analyst by a company.

User Contributed Comments 6

User Comment
keithinny why is C wrong, would seem prudent to have someone else confirm the that none of the information is material ?
Spain81 The question says its non-material information not that Hillary Waters THINKS its non-material information. Were there any uncertainty then it would be prudent to check but this isn't the case here
jayjunk If analyzing the information can lead to material conclusions, how is the information non-material? What is the definition of non-material information?
ontrack Spain81 is absolutely correct.
czar if you discovered the materiality, then you can use it, but if you were explicitly told about material non public information, then you cannot...its the Non public that threw me off
GBolt93 material means that if disclosed it would change the stock price. You can make conclusions from piecing non material information and it's legal though. It's Mosaic Theory.
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