Keep failing Ethics

CFA Level I Ethics
#1

Hey guys,

So I took around 10 mock tests in the last couple of weeks. My overall score has been between 65 and 75% which is close to passing, but I averaged 51% in Ethics which is pretty horrible. Every time I read the answers explanations, everything makes sense to me, but I keep failing when it comes to doing the actual tests.

Do you guys have any advice on the best way to improve my chances? What would be a must-read? Any videos you can recommend to watch? Have 4 days to go, so I’m trying to make the best out of it.

#2

Did you complete Reading 2 from the CFAI curriculum? The examples and explanations given are very comprehensive and in truth almost every question I’ve seen has been very closely related to the material.

If you haven’t read it yet and can find the time I strongly suggest going through it. I wouldn’t worry about the ‘Highlights’, but rather focus on the brief introduction to each Standard, the recommendations for compliance, then the working examples. I haven’t had a score less than 80% for Ethics on any of my mocks or practice tests after emplying this strategy.

#3

Thanks for advice. I actually haven’t touched CFAI curriculum, I only used Schweser. Fingers crossed it helps my score.

#4

The common feeling around AF is that Ethics is the one section that really should be covered using the official text books, obviously though I can’t speak from experience here.

If you can find the time, Reading 2 would be well worth the effort. Don’t worry about the others at this stage (Schweser should definitely be sufficient to get across GIPS based on the questions I have seen).

Best of luck for the rest of the week!

#5

Guys, can anyone help with this mock question?

Roy Marek, CFA, is an investment banker who is working for Elsdon Company. Elsdon’s managers inform Marek of their revenue and earnings projections, which have not been released to the public. Marek uses this information in his analysis to determine an offering price for an upcoming IPO of Elsdon shares. Has Marek violated the Standard concerning material nonpublic information?

A. No, because the information may be used for this purpose.

B. Yes, because he is acting or causing others to act on the information.

C. Yes, because the information would likely affect investors’

valuation of the shares.

I thought it would be considered material nonpublic info, but the answer is A.

#6

tricky one. I would argue this:

  1. the revenue and earnings projections are opinions of the IB and not fact, though will be based on private info.

  2. the underlying company is going through an IPO so the material non-public info cannot be acted on by outsiders.

therefore option A is OK. Option B & C are discounted due to the underlying company not yet being listed.

#7

A very easy question if you understand the difference between what IB Analyst and Research Analyst do. IB mostly work with material nonpublic information. IB Analysts require this information to do their work - since they are hired by the client to issue new shares, raise debt, acquire another company etc. However they are not allowed to share this information with anyone, nor act on it in any other way then what they’ve been tasked with by the client.

That is why “chineese walls” exist between IB and Research departments of one bank.

#8

I think answer’s B

You cannot act or cause others to use material nonpublic information

#9

The answer is A (for the reasoning explained by Backwardation). He didn’t act or cause anyone to act on the information.

#10

I beg to differ. The analyst acted on the information (he used it for his calculations) to compute the price of future IPO that is available for others to act on.

#11

The answer is A, I’ve done the mock question.

I’m not going to copy the standards, but look at Standard II(A) Material Nonpublic Information, “What Constitutes “Nonpublic” Information?”, which essentially says you can use the information, if provided by the company, for activities including offering arrangements. If you use it to trade on, or get others to trade on, then you’re in breach, but that’s not what’s occurring.

#12

I may be wrong but earnings projections that have not been released to the public seem material nonpublic information.

The standards urge not to “act”, not to trade only.

#13

Not all “actions” are prohibited. You are allowed to “act” on material nonpublic info if it’s for a business arrangement – in this case the ibank has a biz arrangement with the issuer. But “acting” for selfish gains is not allowed. Also use common sense. Ibankers need material nonpublic info to price shares, otherwise their jobs are meaningless.

#14

I see my mistake. Thank you!

#15

Thanks guys for your help. I seem to be doing a little better with Ethics - 70%+ on the 3 mocks I took today.

#16

Charlie Mancini, CFA, is the Managing Director for Business Development at SV Financial, (SVF), a large U.S.-based mutual fund organization. Mancini has been under pressure recently to increase revenues. In order to secure business from a large hedge fund manager based in Asia, Mancini recently approved flexible terms for the fund’s client agreement. To allow for time zone differences, the agreement permits the hedge fund to trade in all of SVF’s mutual funds six hours after the close of U.S. markets, which is prohibited by U.S. regulators. Did Mancini violate any CFA Institute Standards of Professional Conduct?

Yes, with regard to Fair Dealing and Material Nonpublic Information No

Yes, with regard to Fair Dealing

I don’t really understand how material nonpublic info comes into place here. Any comments guys?

#17

Becuase the NAV is calcualted daily by the end of business day. If the hedge fund has insider information, the HF manager can act on this material non-public information ahead of the rest of the Mutual Fund clients.