Acting on material non public information

CFA Level I Ethics
#1

Hi Everyone,

If in case client of an investor advisor/analyst overheared director of company ABC talking about higher expected earning for this year. Client called his investor with this information and ask him to buy N numbers of share.

Then will client guided action in this case create any violation?

#2

No, the advisor hasn’t violated the Standards.

#3

Hi Magician,

I also marked this option. But answers says he should not act on material non public information.

#4

Yes he should not act on any material non public information. If the investor then asked him to buy based on the investors order, the advisor still need to comply with the reasonable basis code; thus if he acts on the demand of the investor, then he is violating the Code.

#5

I stand to be corrected on this however. I will like to see other people’s view.

#6

The client has power to buy any shares he/she wants. It is their own money.

#7

hmm… you have a point. thanks for the clearity.

#8

I think the issue here is the key word “knowingly” a member shouldnt { ~ } act,so if the client asks the investor/member without disclosing the reason behind this particular action,then the member is not in violation,bt he is iin violation if he knows that the push to trade is due to a piece of material non public info,the he is in violation.

#9

If the information was not made public and it is material (that is can cause a change in the price or trading volume of the company stocks), The client would be violating the code if the information is acted upon. However, since it was not stated that the information (higher expected earnings) was disclosed to the investor, The client is not in violation as this could be viewed as plain investment recommendation.

I am in agreement with @forgiven311, the word “knowingly” is key.

#10

Only if the client were a covered person: a charterholder, candidate, or member of CFA Institute. The Code and Standards don’t apply to anyone else.

#11

Okay.Noted

Thanks for the clarity

#12

My pleasure.

#13

Moreover in misrepresentaion standard , In case where client wants his advisor to buy XYZ securities which in accordance with advisor will not give good return. Advisor has to buy the same as his duty to client. If same securities give good return in future then advisor can’t consider it as his performace.