JP_RL_CFA Wrote: ------------------------------------------------------- > while we are on the subject, what does a > phlebotimist do? I’m glad you brought this up, > it’s been on my mind all night > > lol only kidding. > > but you are def right, I hope the real test isn’t > out to mess w/ u this bad. I think it’s actually a phlebotomist, but not sure. It’s a person who draws blood, usually at a blood bank or hospital but could also be a person who puts leeches on you.
Another practice questions, from QBank: An analyst meets with a new client. During the meeting, the analyst sees that the new client’s portfolio is heavily invested in one over-the-counter stock. The analyst has been following the stock and thinks it will perform well in the long run. The analyst arranges through a brokerage firm to simultaneously sell a large number of shares of the stock via a series of cross trades from the new client’s portfolio to various existing clients. He arranges the trades to be executed at a price that approximates the current market price. This action is: A) a violation of Standard III(A), Loyalty, Prudence, and Care. B) a violation of Standard III(B), Fair Dealing. C) a violation of Standard V(A), Diligence and Reasonable Basis. D) not in violation of the Standards
D
I dunno. It’s either A or D and I’m inclined to go with D. I think the only thing missing here is that it is appropriate for the clients he is selling it to. The cross-trade isn’t an ethical issue and is probably good tax management. He has done due diligence in sentence #2. D, final answer.
D
D. “There is no violation. It is in the best interest of the client to be diversified and selling via a series of cross trades will likely reduce price impact costs when compared to selling directly into the market. The analyst appears to have reasonable basis for putting the securities in the accounts of other clients.” The confusing part for me is the “suitability” issue regarding issuing the shares to various existing clients.
I think the word “various” was enough for that. You can really see how people with English as a second language get screwed here because “various” can mean something like “some appropriately chosen” but a word like “random” or “hapahazard” would change the answer.
BrokenSocialScene Wrote: ------------------------------------------------------- > D. > > “There is no violation. It is in the best interest > of the client to be diversified and selling via a > series of cross trades will likely reduce price > impact costs when compared to selling directly > into the market. The analyst appears to have > reasonable basis for putting the securities in the > accounts of other clients.” > > > The confusing part for me is the “suitability” > issue regarding issuing the shares to various > existing clients. Confused with the suitability bit. As the client is new, shouldn’t the analyst conduct due diligence on whether the otc stock is appropriate to hold depending on the client’s risk profile etc?
Well either way the standards say you should follow the market portfolio theory and having a big portion of your portfolio invested in one stock def can’t be good for the client.
Bump; some CFA style ethics questions for you…very tricky 1) The answer is B, although I choose A. I really see this as an impediment to independence and objectivity, but thinking about it more, the question stated that there had been a previous underwriting with the firms. Furthermore, with so many questions about analysts being thrown out there, it completely slipped my mind that we where talking about an underwriter. In that case the problem changes to an assessment of risk to the firm, and the decisions to take on such a risk. I guess the theory is that the underwriting is going to happen anyways, so this is simply an additional form of compensation for added layer of performance (complete under 1 month) 2) The answer is C, which is what I choose. There is no indication that fair dealings has been broken, especially since he only has one client and the client instructed him to sell (not buy). 3) The answer is D, but I choose B. My thinking was that if the stock truly is that good and it is an OTC security, then cross-trading may be taking away profits from the new client. However, the point about diversification through cross-trading does make some logical sense, it just seems like another stupid curve ball.
cowtown, pt of cross-trading is to reduce to reduce mkt impact that can be esp prevalent when trading an otc stock, not diversification. two seperate issues. good questions!
Agreed jgrand, cross-trading does reduce market impact, especially in illiquid markets. But the justification for the question is the result of diversification from partial liquidation. That was my point.
Christopher Kim, CFA, is a research analyst for Batts Brothers, an investment banking firm in New York. Kim follows the energy industry and has frequent contact with industry executives. A CEO ofa large oil and gas corporation that has previously employed Batts Brothers to underwrite a stock issue has invited Kim to his office to discuss a secondary offering of the company’s stock. The CEO wants Batts Brothers to underwrite the stock issue. As an incentive to place the issue quickly with institutional investors, the CEO offers Kim the opportunity to fly on his private jet to his ranch in Texas for an exotic game hunting expedition if Kim’s firm can complete the underwriting within one month. According to CFA Institute Standards of Conduct, Kim: A. must not accept such lavish benefits in order to maintain his objectivity. B. must obtain written consent from Batts Brothers before accepting the invitation. C. may accept the invitation without consent ifhe submits a statement disclosing the value of the trip to Batts Brothers when he returns. D. may accept the invitation without consent only ifhe discloses the trip to Batts Brothers before accepting. --------------------------------------- what is the answer to this question? In some of the comments above it says C, but i will go with B and if C is really the answer would someone please shed a little light…
The answer is B