CFA Level I · CFA Level I Exam · Guidance for Standard II: Integrity of Capital Markets
A portfolio manager pays an industry expert for insights on a pharmaceutical firm's products. During a call, the expert reveals confidential clinical trial results that have not been released. The manager's most appropriate action is to:
The manager should avoid investment actions based on the trial results until they are publicly known. Paying experts is allowed, but if an expert provides material nonpublic information, Standard II(A) prohibits acting on it, and agreements or the use of funds instead of shares do not change this.
- Atrade only in a mutual fund holding the stock, since the standard applies to individual securities
- Bavoid investment actions based on the results until they become publicly knownCorrect
- Cact on the results because the expert signed a nondisclosure agreement and was paid
Explanation
Paying experts for insights is permitted, but members are responsible for not requesting or acting on confidential information. Even with compliance agreements, if an expert provides material nonpublic information, investment actions are prohibited until it becomes public. The prohibition also covers mutual funds.
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