CFA Practice Question

CFA Practice Question

Clearsky Capital provides corporate finance services to large corporations and also produces research reports in addition to making a market in many of those securities. As a result of its corporate finance and placement activities, Clearsky receives stock options as part of its compensation. Moorehead Meats is one such company in which Clearsky holds options. Clearsky's research division is revising its six-monthly report on the Meat industry in which Moorehead is a dominant player. Clearsky does not have a disclosure policy regarding its stock holdings. Roger Miles releases the meat industry report as usual. Roger has
A. not violated any standards since the company does not have a disclosure policy regarding its holdings.
B. has violated Standard VI (A) - Conflicts of Interests.
C. has violated Standard I (C) Misrepresentation, and Standard VI (A) - Disclosure of Conflicts.
Explanation: By not disclosing the firm's interest in Moorehead Meats' securities, Roger has violated Standard VI (A). The beneficial interest should be disclosed in a footnote, laying out the amount, extent and expiration date of stock options. While options may not pay dividends or have voting rights, if the stock price goes up they would be exercised. Thus, maintaining a high stock price for Moorehead's stock would be in the firm's interest, and may introduce a bias in its research report which the reader ought to know.

User Contributed Comments 2

User Comment
dealsoutlook i thought if the firm doesnt have the policy to disclose then the employee is not violating any rules? how is this one different?
Birdy101 no rules, CFA rules
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