You are a sell side analyst at a major investment bank. You strongly believe that a current full service client of the bank, Company X will announce a profits warning in the next few weeks. You wish to issue a sell note but your senior advises you to talk to the corporate finance MD responsible for managing the relationship with that client before you do. The relationship manager warns you that release of a sell note will result in the loss of $10m of fees for the bank this year and that you will almost certainly be fired. What is your best course of action? A: Release the sell note so as to affirm your professional integrity B: Review your opinion and change your outlook to neutral C: Resign, and recommend to your colleagues that they resign too in the face of unconscionable pressure D: Remove Company X from the research universe and place on a restricted list, providing only factual information about the company Zoltan, an investment adviser currently runs an independent practice with a steady stream of work provided by several wealthy clients. Zoltan is considering an offer from a friend to go in house, the friend is aware of his existing business but thinks that Zoltan would make a valuable addition to his investment team. If Zoltan is to maintain his own business as well as being employed then which of the following best describes his course of action? A: Obtain the written consent of his new employer to retain his old business and disclose in writing to each of his clients his new employment B:Obtain the written consent of his clients to retain his old business and disclose in writing to his new employer C: Obtain the verbal consent of his clients to retain his old business and disclose in writing to his new employer D: Obtain the written consent of his clients to retain his old business and disclose verbally to his new employer Sally’s company imposes trading restrictions on employees forbidding them from entering into any equity purchases of US listed securities. Sally believes that this is an unfair restriction on her right to trade and decides to buy a single share in Microsoft, not for personal profit but to make an ethical stand. Has Sally violated her duty towards her employer? A: No, because the purchase was small B: No, because the purchase was justified on ethical grounds C: Yes, because she could still make a profit D:Yes, because she has no right to unilaterally disapply a trading restriction just because she feels it unjust Dan Wright, an equity analyst conducts extensive research into Zenon Corp and is convinced the stock is a strong buy. He is due to release the research the next day, certain of the accuracy of his advice. Whilst enjoying a celebratory dinner at his favourite restaurant he notices a rival analyst sitting at a nearby table. He drops his fork and crawls around on the floor so that he can get closer to his table to hear what is being said. The rival analyst is boasting to his friend that only he has called Zenon Corp correctly, that the company is in real trouble and will most likely be in liquidation before the end of the year. Dan runs back to the office and changes his note to a sell. Has he breached the code and standards? A: Yes, because the information is non-public and price sensitive and his actions amount to insider dealing B: Yes, because he has misappropriated non-public information C: No, because hid decision to change his mind is adequately justified D: Yes, because he does not have a sound basis for his new opinion *Not the same question Dan Wright, an equity analyst conducts extensive research into Zenon Corp and is convinced the stock is a strong buy. He is due to release the research the next day, certain of the accuracy of his advice. Whilst enjoying a celebratory dinner at his favourite restaurant he notices a director of Zenon Corp sitting at a nearby table. He drops his fork and crawls around on the floor so that he can get closer to his table to hear what is being said. The Director is confiding to his friend that the company is in real trouble and will most likely be in liquidation before the end of the year. Dan runs back to the office and changes his note to a sell. Is Dan likely to have breached the code and standards? A:Yes, because the information is non-public and price sensitive and his actions amount to insider dealing B: Yes, because he has misappropriated non-public information C: No, because hid decision to change his mind is adequately justified D: Yes, because he does not have a sound basis for his new opinion
Let’s try: 1.D 2.A 3.D 4.D 5.B
- Choice D 2. Choice A 3. Choice D 4. Choice D 5. Choice B
- A 2. A 3. D 4. D 5. B
D A D D B
A/A/D/D/A
I’d say A A D D B
The correct answers are: D A D D B For the first question in particular the explanation literally said: While the first choice is heroic, it is not practical.
kevin002, do you have an explanation for #2 by any chance? Or a reference to a source?
The only explanation (which is pretty useless) I have is: “Written consent of new employer, written notification to existing clients (and prospective clients).” I believe it falls under Std IV. Not so sure about that though.
I could not find guidance on this anywhere…
D B D D B Please let us know the correct answers, kevin002?? - Dinesh S
kevin002 has posted the correct answers a few messages up! D A D D B
Dinesh, I also chose B for Q2. Appreciate if anyone could provide a reference to back up A as the right answer.
Could anyone please explain the difference between A and B for the last question? Thanks!
There is no “insider-dealing” involved. He is just changing a recommendation.
kevin002 Wrote: ------------------------------------------------------- > Dinesh, I also chose B for Q2. > > Appreciate if anyone could provide a reference to > back up A as the right answer. thanks cpk123, my screen looks so hazy on a monday morning. Btw, any pointers to why the answer should be ‘A’, kevin002 ??
The only reason to support A would be : You don’t need your clients’ “consent” to secure another job. Disclosure should suffice, but you definitely need the new employer’s consent. That being said, I’d really appreciate if someone could reference this.
I"m trying to elaborate, please correct me if I might be wrong. question number 2: the standards of ethics handbook states: #1. standard IV (A) loyalty to employers: p.84 (leaving an employee) "An employee is generally free to make arrangements or preparations to go into competitive business before terminating the relationship with his or her employer provided that such preparations do not breach the employee’s duty of loyalty. " since he works an “investment adviser currently that runs an independent practice” he is free to make such arrangements. #2. After he signs the new contract, his best friend becomes his boss, therefore: standard IV(B) additional compensation arrangements, p.91 "Compensation and benefits include direct compensation by the client and any indirect compensation or other benefits received from third parties. Written Consent includes any form of communication that can be documented (for example, communication via computer e-mail that can be retrieved and documented). Members and candidates must obtain permission for additional compensa- tion/benefits because such arrangements may affect loyalties and objectivity and create potential conflicts of interest. Disclosure allows an employer to consider the outside arrangements when evaluating the actions and motivations of mem- bers and candidates. " Third party here- his old job. Hope this might help.