- 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
There are 361 practice questions for this study session.
CFA Practice Question
Trevor hears from his wife, who has just spoken to the wife of the CEO of company QAS, that they are about to fire the CFO of QAS. Trevor immediately sells his shares in QAS. Has Trevor violated the Standards of Professional Conduct per Standard II(A) Material Nonpublic Information?
A. Yes, because the information was misappropriated.
B. Yes, because the information is likely to cause a large price movement in the company's securities.
C. Yes, because he used material non-public information.
Explanation: The information is material and non-public and Trevor should not act on it.
User Contributed Comments 11
|jmcarr02||Trevor is not a person related to the CFA Institute... not a candidate, memeber or charterholder. because no duty is owed to the company to maintain the confidentiality of the information and the information was not misappropriated. Then, he is not obliged to comply with those standards.|
|cpt28||In almost no other questions there is a hint that the person is a candidate, member or charterholder. The answer is C.|
|jam99003||But they were his shares. Not in the course of his business. Couldn't this just be considered a stock tip? Gossip isn't insider trading.|
|wollogo||From my understading trading on inside information is illegeal regardless of source or purpose. You can't call this type of information "gossip" because it is credible.|
|jerylewis||Other might believe that it was material non public info: the mere fact that others may have a doubt is a case of violation|
|mountaingoat||what about A? that is included in the standard as well. or do i misunderstand the word's meaning? I guess C is more correct?!|
|midwest||I certainly agree that "C" is the best answer, however, can't "B" also be correct? Or does that have to do with another standard?|
|nike||B is true but is not a reason for violating the standard.|
|shival||I dont't think that info from wife of the CEO could be considered material. It is not reliable source|
|Gooner7||So misappropriation only occurs when a board member, or someone of that level, disseminates information when he/she should not have?|
|LAWRANCE||I think the best practice is that no one in possession of non-public material information should act upon it or cause others to act upon it. There are cases of insider trading now and in the past against both Chater holders and non Charter holders|