CFA Level I · CFA Level I Exam · Code of Ethics and Standards of Professional Conduct
A trader at an asset manager executes a series of small buy orders in a thinly traded stock just before the close on the last day of the quarter. The orders are meant to lift the closing price so that a fund's reported quarter-end valuation is higher, but the trades are real and settle normally. Which statement best describes the trader's conduct under Standard II(B)?
The conduct is a violation of Standard II(B). Real, settled trades can still be market manipulation when they are placed to distort the price and mislead market participants, such as by lifting a thinly traded stock's closing price to flatter a quarter-end valuation.
- AAcceptable, because every trade was genuine and settled
- BAcceptable, provided the fund discloses its quarter-end holdings
- CA violation, because trades intended to distort price can be manipulation even when they are real transactionsCorrect
Explanation
Standard II(B) covers transaction-based manipulation, which includes trading that distorts the price or artificially inflates volume with intent to mislead. Genuine, settled trades can still breach the standard if the intent is to distort. Disclosure of holdings does not cure the misleading price.
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