FRM Part I · FRM Exam Part I · GARP Code of Conduct
A risk manager at an asset manager is a GARP member. While validating a model, he learns from a colleague that the firm is about to submit a large order that will move the price of a thinly traded bond. He then buys the bond for his personal account before the order is placed. A manager says the personal trade was small and the firm lost nothing. Which assessment best fits the GARP Code of Conduct?
This is a violation. He traded personally on confidential, price-moving information learned through his role, putting his own interest ahead of the employer and clients. The GARP Code does not excuse this because the trade was small, the firm lost nothing, or he disclosed it afterward.
- AAcceptable, because the firm suffered no measurable loss
- BAcceptable, provided he discloses the trade after the order executes
- CA violation, because he used material nonpublic information for personal benefit and placed his interest ahead of the employer's and clients'Correct
- DA violation only if the trade profit exceeds a materiality threshold set by GARP
Explanation
The Code prohibits using confidential or material nonpublic information for personal gain and requires members not to put personal interests ahead of their employer's or clients'. Absence of firm loss or later disclosure does not cure it. GARP sets no profit threshold for the violation.
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