CFA Level I · CFA Level I Exam · Guidance for Standard II: Integrity of Capital Markets
An analyst researching a manufacturer speaks with its suppliers, customers and competitors, then combines this with published financial statements. Why is this activity most likely beneficial to the capital markets?
The activity enhances market efficiency. Analysts who seek out information not generally known, analyze its significance and inform clients help prices reflect more information, which benefits all investors. This is why the mosaic of public and nonmaterial nonpublic information is protected under Standard II(A).
- AIt enhances market efficiency by uncovering and analyzing information not generally knownCorrect
- BIt permits the analyst to avoid documenting the research process
- CIt lets the analyst trade ahead of the company's formal announcements
Explanation
The guidance says analysts' initiatives to discover and analyze information and communicate findings to clients significantly enhance market efficiency, benefiting all investors. Documentation is still advised, and the mosaic does not authorize use of material nonpublic information.
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