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

An analyst at a brokerage firm learns from a friend, a senior employee of a listed manufacturer, that the company will announce a large unexpected loss next week. The information has not been made public. The analyst is considering how to act on it. Under Standard II(A) Material Nonpublic Information, the analyst's most appropriate action is to:

The analyst should not act or cause others to act on the material nonpublic information and should encourage the company to make it public. Trading personally or tipping clients would both breach Standard II(A), which bars use of such information.

  1. Aavoid acting or causing others to act on the information, and encourage the company to make it publicCorrect
  2. Btrade only in the personal account and leave client accounts untouched
  3. Ctell clients who hold the stock so they can sell before the announcement

Explanation

Standard II(A) prohibits acting or causing others to act on material nonpublic information. Trading a personal account (B) is acting on it. Tipping clients (C) causes others to act on it. The analyst should refrain from using it and encourage public disclosure.

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