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

A portfolio manager hears from a friend at a supplier that a listed customer will announce a large, unexpected contract loss tomorrow. The friend says the information is not yet public. The manager is most likely to comply with Standard II(A) by:

The manager complies by not acting or causing others to act on the information. Because it is material and nonpublic, selling in any account, including to protect clients, is using it. Informing clients afterward does not cure the violation.

  1. Areducing only the holdings in clients' accounts
  2. Bnot acting or causing others to act on the informationCorrect
  3. Cselling the shares in discretionary accounts and informing the clients afterward

Explanation

If the information is material and nonpublic, the manager must not act or cause others to act on it. Selling client holdings is acting on it, even if clients are told later or the motive is protection.

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