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CFA Level I · CFA Level I Exam · Code of Ethics and Standards of Professional Conduct

A portfolio manager publishes an unfounded rumor online that a rival bank is nearing insolvency, intending to push down the bank's share price so that the manager's fund can buy the shares more cheaply. The manager's conduct most likely violates:

The conduct most likely violates Standard II(B), Market Manipulation, because spreading a false rumor to move a share price is an attempt to mislead market participants. It is not an inside-information case, so Standard II(A) is not the relevant breach.

  1. AStandard II(A) only, because the rumor is a form of nonpublic information
  2. BStandard II(B) Market Manipulation, because it was intended to mislead market participantsCorrect
  3. Cneither standard, because the manager did not trade on inside information

Explanation

Standard II(B) prohibits practices that distort prices or artificially inflate trading volume with intent to mislead market participants, including spreading false rumors to affect prices. A false rumor is not material nonpublic information, so II(A) is not the issue. Lack of inside information does not excuse manipulation.

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