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FRM Part I · FRM Exam Part I · GARP Code of Conduct

A risk manager at an asset manager receives non-public information from a friend at a listed client, indicating that the client will shortly announce a large loss. The manager is considering reducing the fund's exposure to the client's bonds. Which statement is most consistent with the GARP Code of Conduct?

The manager must not act on the material non-public information and should consult compliance. The Code bars using confidential or inside information for personal or firm advantage and requires compliance with applicable laws. Neither the friendly source, the small trade size, nor an internal memo cures the violation.

  1. AThe manager may trade because the information came from a personal friend rather than the client's official channels
  2. BThe manager may trade if the exposure reduction is small relative to the portfolio
  3. CThe manager must not use the material non-public information for personal or firm advantage and should follow the firm's compliance proceduresCorrect
  4. DThe manager may trade provided the reasons are written in an internal memo first

Explanation

The Code requires members not to use confidential or material non-public information for personal or other advantage and to comply with laws and rules. The source being a friend, the trade size, or a memo does not change this. Consulting compliance is the appropriate step.

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