On Standard II(A) Material Nonpublic Information

CFA Level I Ethics
#1

CFA book states that to aviod violating Standard 1(D), members and candidates who possess material nonpublic information must not act or cause other to act on the information.

In Example 1, the books comments that both Staple and Halsey are in violation. Staple for causing other to act on the material nonpublic information while Halsey acted on the material nonpublic information.

------------------------------------------------------------------------------------------------------------------------------------------------------------ Frank Barnes communicated the information to his sister, who communicated it to his daughter, who told Staple.

Therefore, Frank Barnes could have tempted his sister to act on it. Frank’s sister could have tempted her daughter to act on it. Frank’s neice could have tempted her husband to act on it.

So what about Frank Barnes, his sister, and his niece?

#2

If they’re covered persons, they’ve violated the standard; if they’re no, they haven’t.

#3

Please explain to me what you mean by covered persons.

#4

ethical and professional standards apply only to “members and candidates”, so

  • if Frank is a CFA charterholder or a CFA candidate and caused other to act on the information he violated 1 (D)

  • if Staple is a CFA charterholder or a CFA candidate and acted on the information he violated 1 (D)

  • if his sister and his niece are CFA charterholders or a CFA candidates they are in violation of 1 (D) as well because they caused others to trade on material non-public information. If they have no connection to CFA they cannot violate any standard since they are “not covered”. However, they might have violated laws

#5

Charterholders, candidates, and members of CFA Institute: the only people to whom the Code and Standards apply.

#6

@xk @s2000magician

Thank you. However, none of them(Frank, his sister, his niece) are covered persons including Staple and Alex, who are mentioned to have violated the standard.

Even if we are to assume that the people mentioned in the example are implied to be CFA charterholders, candidates, and members, only Staple and Alex were mentioned to have violated the standard. I am in a dilemma whether the book may have a mistake on this example.