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CFA Level I · CFA Level I Exam · Guidance for Standard II: Integrity of Capital Markets

Under Standard II(B), the intent of a trading action is most likely critical in determining whether a violation has occurred because:

Intent is critical because legitimate trading strategies exploiting perceived inefficiencies may look abusive, particularly in illiquid or volatile markets. Standard II(B) is not meant to preclude such trades, so the purpose to mislead market participants separates a violation from proper activity.

  1. Alegitimate trades can appear abusive in illiquid or volatile marketsCorrect
  2. Ball large orders in illiquid markets are manipulative
  3. Conly transactions that change beneficial ownership can be manipulative

Explanation

The guidance says Standard II(B) does not preclude legitimate strategies based on perceived market inefficiencies. Such activity may look abusive, especially in illiquid or volatile markets, so intent decides. The other options misstate the guidance; lack of ownership change is only an indicator, not a requirement.

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