A brokerage’s insurance analyst, Denise Wilson, makes a closed-circuit TV report to her firm’s branches around the country. During the broadcast, she includes negative comments about a major company in the insurance industry. The following day, Wilson’s report is printed and distributed to the sales force and public customers. The report recommends that both short-term traders and intermediate investors take profits by selling that insurance company’s stock. Seven minutes after the broadcast, however, Ellen Riley, head of the firm’s trading department, had closed out a long “call” position in the stock. Then, shortly thereafter, Riley established a sizable “put” position in the stock. When asked about her activities, Riley claimed she took the actions to facilitate anticipated sales by institutional clients Solution: Riley did not give customers an opportunity to buy or sell in the options market before the firm itself did. By taking action before the report was disseminated, Riley’s firm may have depressed the price of the calls and increased the price of the puts. The firm could have avoided a conflict of interest if it had waited to trade for its own account until its clients had an opportunity to receive and assimilate Wilson’s recommendations. As it is, Riley’s actions violated Standard VI(B)
Q1. How are Riley’s actions in any way before? i mean before the report was disseminated? She took action 7 mins after the broadcast. Or is it that the report was published the next day, so this means that the actions taken 7 mins after the broadcast (as closed circuit it was) are on non public info and for firm?
Q2. How are actions on behalf of the firm and not clients? Where is it clear on whose behalf she is trading? In fact, as she facilitated sales by institutional clients, she in fact did this on behalf of clients?