Professional Standard

CFA Level I Ethics
#1

An analyst enters two transactions for her personal account.

  1. Sells Stocks of XYZ on which her firm currently has a " Buy" recommendations

  2. Buys Stocks of ABC and following day issues a report on ABC with a “BUY” recomeendation.

According to me she has violated in both transactions.

What are your views?

#2

  1. only violed if she does not disclose to her employer

  2. violation if she does not disclose in the report her conflict of interest

#3

Sounds about right to me.

#4

I am a little lost here on the second answer provided by dwheats. If someone buys into his/her account before recommending a buy, is that not a violation in itself even if he/she disclose this in his/her report?

Please expantiate further.

And S2000magician, i will also appreciate your clearity on this because you seems to agree with the above comment.

#5

I did reply a bit hastily.

It would depend on when the buy recommendation was formulated: if she had already formulated the buy recommendation before purchasing the ABC stock, then it would be front running, which is a violation of the Standards. If she purchased the stock, then formulated the buy recommendation the next day, it would not be front running, but she still needs to disclose her ownership position.

#6

In question it is not given.

Answer = only 2 point violate the principle.

Well I agree now with answer because as per her first transaction she acted after information made publically.

#7

She purchased the stock, then formulated the buy recommendation. It is for sure front running.

#8

I think it’s implied that she spent more than one day formulating the recommendation so it is front running. If she didn’t, she probably violated adequate basis.

#9

I don’t see the implication, but if it’s there, then it’s a poor question: not the sort of thing you’ll encounter on the real exam. CFA Institute will tell you explicitly what you need to know.

#10

Ok

#11

I think this is a violation because the analyst must have acted on information. However, since it was not stated if there was a communication of information (material non-public), the question seems incomplete to me.

#12

j

#13

k

(Is this one of those psychiatrist, word association things?)