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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 reaches a conclusion that would have been material had the company communicated it directly is most likely:

The analyst is free to act on the conclusion. Under the mosaic theory, conclusions built from public and nonmaterial nonpublic information may serve as the basis for recommendations, even if the same conclusion would have been material had the company disclosed it directly. No violation of Standard II(A) results.

  1. Afree to act on it if it came from public and nonmaterial nonpublic informationCorrect
  2. Bin violation of Standard II(A) because the conclusion itself is material
  3. Crequired to make the conclusion public before clients may trade on it

Explanation

The guidance says an analyst may use significant conclusions drawn from public and nonmaterial nonpublic information as the basis for recommendations, even if the same conclusion would have been material inside information if the company had communicated it directly. The second option wrongly judges the conclusion rather than the inputs. The third option conflicts with the guidance that an analyst need not make work public.

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