CFA Level I · CFA Level I Exam · Guidance for Standard II: Integrity of Capital Markets
An analyst at an investment firm learns from a confidential conversation with a company's finance director that the company will announce a takeover bid within days. The analyst does not own the company's shares but manages a fund that holds derivatives on the sector index. Under Standard II(A), the analyst's most appropriate action is to:
The analyst must avoid acting or causing others to act on the information. Standard II(A) bars use of material nonpublic information in any investment action, including derivatives, mutual funds and alternatives, so neither derivative trades nor personal purchases are permitted.
- Aavoid acting or causing others to act on the informationCorrect
- Btrade only derivatives, because the restriction covers only individual securities
- Cbuy the shares in a personal account but not in client accounts
Explanation
Standard II(A) prohibits acting or causing others to act on material nonpublic information. The prohibition extends beyond individual securities to derivatives, mutual funds and other alternative investments. Trading derivatives or buying personally is therefore still a violation.
Did you get it right without looking?
One question tells you little. A timed set on Guidance for Standard II: Integrity of Capital Markets shows your real accuracy, how long you take and where you lose marks.
More Guidance for Standard II: Integrity of Capital Markets questions
- Which outcome is most likely to result from widespread unethical conduct by market participants, according to the CFA Institute?
- Mei, a buy-side analyst, visits a retailer's stores, talks to its suppliers and reads public filings. A supplier's employee then privately t…
- Under Standard II(B), the intent of a trading action is most likely critical in determining whether a violation has occurred because:
- A CFA candidate works in a country where local custom accepts practices that undermine market fairness, and the country's standards are less…
- Under the mosaic theory, an analyst who concludes that a company's earnings will fall, based on public information and nonmaterial nonpublic…
- A portfolio manager buys a dominant position in a thinly traded commodity-linked security to push up the price of a related derivative she h…