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CFA Level I · CFA Level I Exam · Guidance for Standard II: Integrity of Capital Markets

A portfolio manager at an asset management firm receives, by mistake, an email from a client company's lawyer showing that an unannounced bid for a target company will be made. The manager is unsure whether the information is material. Which action is most appropriate under Standard II(A)?

The manager should refrain from acting on the information and consult compliance. Standard II(A) forbids acting or causing others to act on material nonpublic information, so test trades or passing the email to colleagues who might trade would both be inappropriate.

  1. APlace a small trade first to test whether the price reacts.
  2. BRefrain from acting on the information and consult the firm's compliance department.Correct
  3. CPass the email to colleagues so they can decide independently whether to trade.

Explanation

Members who possess material nonpublic information must not act or cause others to act on it. Trading as a test is acting on it, and sharing the email could cause others to act. Not acting and involving compliance is the appropriate response.

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