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

Under the mosaic theory, an analyst who concludes that a company's earnings will fall, based on public information and nonmaterial nonpublic information, has most likely:

The analyst has not violated Standard II(A). Under the mosaic theory, analysts may act on conclusions reached by combining public and nonmaterial nonpublic information, even when the conclusion would have been material if the company had disclosed it directly. The conclusion itself does not become inside information.

  1. Aviolated Standard II(A) because the conclusion is material
  2. Bnot violated Standard II(A) by acting on the conclusionCorrect
  3. Cviolated Standard II(A) unless the conclusion is published to all investors

Explanation

The Standard says analysts may base recommendations on conclusions drawn from public and nonmaterial nonpublic information, even if the conclusion would have been material had the company communicated it directly. Acting on such a mosaic does not violate Standard II(A). The other options wrongly treat a material conclusion as inside information.

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