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CFA Level I · CFA Level I Exam · Guidance for Standard VI: Conflicts of Interest

A portfolio manager plans a large client purchase of a thinly traded stock tomorrow. His brother's account, over which the manager holds trading authority and a financial interest, could buy the stock today. The manager's most appropriate action is to:

He should trade for his brother's account only after the client order is done and clients have had adequate opportunity to act. Family accounts in which he has an interest count as personal transactions, so buying first would be front-running.

  1. Abuy for the brother's account today because it is not his own account
  2. Bbuy for the brother's account after the client order has been completed and clients have had adequate opportunity to actCorrect
  3. Cbuy for the brother's account today and disclose it in the next quarterly report

Explanation

Personal transactions include accounts of immediate family members and accounts in which the member has a direct or indirect financial interest. Beneficial-owner transactions are allowed only after clients have had adequate opportunity to act. Buying first is front-running, and later disclosure does not cure it.

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