CFA Level I · CFA Level I Exam · Guidance for Standard II: Integrity of Capital Markets
A bank's credit analyst receives confidential details of a pending acquisition from a client company solely to underwrite a loan under a business agreement. Later, the analyst considers buying the client's stock for her personal account. Which statement is most accurate under Standard II(A)?
Using the information for loan underwriting was permitted, but trading the stock on it would violate Standard II(A). Information provided legitimately for due diligence may be used for that purpose only, and using it for other purposes, especially trading, is a violation.
- AUsing the information for the loan due diligence was permitted, but trading the stock on it would violate the standardCorrect
- BUsing the information for the loan and trading the stock are both permitted because it was legitimately received
- CUsing the information for the loan and trading the stock would both violate the standard
Explanation
A member may use insider information legitimately provided for due diligence, such as loan underwriting, in line with the business agreement. Using it for other purposes, especially to trade or entice others to trade the firm's securities, is a violation. Legitimate receipt therefore does not permit trading.
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