CFA Level I · CFA Level I Exam · Guidance for Standard II: Integrity of Capital Markets
An analyst at an investment firm learns from a friend at a listed company that the company will announce a large, unexpected acquisition next week. The analyst has no position in the company's shares but does manage a client portfolio holding index call options on a basket that includes the stock. Under Standard II(A), the analyst's most appropriate action is to:
The analyst must not use the information in any investment action. The prohibition on material nonpublic information extends beyond shares to derivatives, mutual funds and alternative investments, so trading options or trading only for clients would still violate Standard II(A).
- Aavoid using the information to influence any investment action, including those involving derivatives.Correct
- Bbuy additional index call options, because the options are not shares of the company itself.
- Ctrade only in the client portfolio, because the analyst has no personal position in the company.
Explanation
Standard II(A) bars acting or causing others to act on material nonpublic information. The guidance states the prohibition goes beyond individual securities and covers derivatives, mutual funds and other alternative investments. Buying options, or trading for a client, would still be acting on the information.
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