Discrepancy in Ethics EOC quesitons
I’m trying to find the difference between these two examples but I don’t see one. Can someone please explain the difference in the example used in quesiton 6 below. The questions are regarding Standard VI(B) Priority of Transactions.
The standard reads: Some situations occur where a member or candidate may need to enter a personal transaction that runs counter to current recommendations or what the portfolio manager is doing for client portfolios. For example, a member or candidate may be required at some point to sell an asset to make a college tuition payment or a down payment on a home, to meet a margin call, or so on. The sale may be contrary to the long-term advice the member or candidate is currently providing to clients. In these situations, the same three criteria given in the preceding paragraph should be applied in the transaction so as to not violate Standard VI(B). The 3 criteria are (1) the client is not disadvantaged by the trade, (2) the investment professional does not benefit personally from trades undertaken for clients, and (3) the investment professional complies with applicable regulatory requirements.
Now EOC question #26 on page 182 and its answer seem to hold to this above rule. Here is the question and answer for reference:
Rose, a portfolio manager for a local investment advisory firm, is planning to sell a portion of his personal investment portfolio to cover the costs of his child’s academic tuition. Rose wants to sell a portion of his holdings in Household Products, but his firm recently upgraded the stock to “strong buy.” Which of the following describes Rose’s options under the Code and Standards?
Based on his firm’s “buy” recommendation, Rose cannot sell the shares because he would be improperly prospering from the inflated recommendation.
Rose is free to sell his personal holdings once his firm is properly informed of his intentions.
Rose can sell his personal holdings but only when a client of the firm places an order to buy shares of Household.The correct answer is B. Standard VI(B)–Priority of Transactions does not limit transactions of company employees that differ from current recommendations as long as the sale does not disadvantage current clients. Thus, answer A is incorrect. Answer C is incorrect because the Standard does not require the matching of personal and client trades.
HOWEVER EOC question #6 on page 223 gives a different answer, to what seems to me to be the same question. The relavent paragraph and question reads:
After the appropriate waiting period, Kepsh purchases GeoTech shares for his personal account. On 11 May, Kepsh is one of the speakers at a biotechnology investment conference that is open to the public. By the time Kepsh presents his report on GeoTech, the conference is behind schedule. To save time, Kepsh summarizes his report and recommendation and does not make any disclosure statements. After the presentation, a conference participant requests a copy of his report. Kepsh responds that the report is available to the audience for a nominal fee.
On 25 May, Kepsh sells shares of GeoTech to pay for a wedding anniversary gift for his wife. In the future, Kepsh expects that, based on CVG’s policy, he will receive large bonuses from increased investment banking fees and brokerage commissions attributable to his recommendations.
Are Kepsh’s sale of shares and CVG’s bonus policy, respectively, in conformity with the CFA Institute Research Objectivity Standards?
Sales of Shares
HERE IS THE ANSWER
A is correct. The Standards prohibit Kepsh from trading in a manner that is contrary to the employee’s or firm’s most recent published recommendations. The Standards also prohibit direct linking of analyst compensation with investment banking activities.
“PROHIBIT KEPSH FROM TRADING IN A MANNER THAT IS CONTRARY TO FIRMS MOST RECENT PUBLISHED RECCS”
Is this an error in the text for this question? If not, what am I missing? Is it literally just becuase the first guy spent it on tuition and the second guy spent it on a gift for his wife? If so, lame rule.
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