So AF says not to discuss specific questions so I’ll keep it general-ish. You buy stock for a pension using material non-public info IN ORDER TO HELP THE COMPANY’S STOCK, not the pension. which is the bigger sin- 1. Trading on material non-public info 2. doing your pension beneficiaries a disservice by not making a decision made to benefit them? I initially thought 1 as almost a knee-jerk answer, but when I was going over it I rethought-it to 2. Overthinking?
You can’t trade on non-public information period.
yes, it’s illegal… no way he could trade on it.
The caveat is: there was an indepdent research conducted. NOW: what should I do if I were the manager?
Thought about that… 1. True, you can’t trade on nonpublic info, but here’s what I’m saying- if you’re trading on nonpublic material info that HARMS your pension, the issue of trading illegally is not as much as a problem than the fact that you were not acting in your client’s interests. e.g. if I buy a crappy company’s stock just to help out my friend, the fact that I knew that his company was secretly crappy and using my pension’s funds to help it is not really 'trading on material info" at all. it’s using client funds to achieve an objective that has nothing to do with the client, right? I mean the purpose of trading on non-material info is meant to prevent exploiting the stock, not in exploiting your clients, which you shouldn’t do even with publicly known information. 2. Independent research was INTENDED to find support for the puchase decision, which was already made. I’m probably overthinking it, but now I think I’m indignant and thinking I’m right, even if they grade question as wrong. so there.
It would not have harmed the pension, the stock price would go up when the announcement was made. Once he got the material non public info he was not able to act on it, period. It was Material and it was non-public.
What wasn’t clear fr the wording if the manager knew about tender. If he knew, of course he can’t trade. But I wasn’t sure till the end if question implied he knew. Went with he can’t trade, but really,how the fmck am I supposed to read cfai’s mind? That’s not what the exam should be about. Whoever wrote that Q is a moron.
good point. dang it.
nailit Wrote: ------------------------------------------------------- > What wasn’t clear fr the wording if the manager > knew about tender. If he knew, of course he can’t > trade. But I wasn’t sure till the end if question > implied he knew. Went with he can’t trade, but > really,how the fmck am I supposed to read cfai’s > mind? That’s not what the exam should be about. > Whoever wrote that Q is a moron. The wording was difficult, but clear. Something along the lines of: “The company will be subject to a takeover bid that is not public knowledge yet.” “The pension fund asks the manager to purchase stock in order to defeat the takeover bid.” That’s a violation.
exactly. the ex-post facto “independent evaluation” is meaningless if MNPI prompted the whole thing.
He was asked to buy for pension to drive the stock price up, so that they can avoid the takeover bid… obviously the manager was informed about this tender offer. on the other hand, the question didn’t say the indepdent valuation was a conspiracy with the board (i tried to find hints it was a cheated independent report- but can’t). so i have to assume that it is indeed an independent report and think it is suitable.
The manager was first asked to buy for the fund to drive the price up and prevent the takeover bid. This is material non-public information and he is not permitted to act upon it. The manager subsequently asked (took action) an analyst to perform a valuation on the stock in order to give them reason to purchase it. Taking the action of asking the analyst to look at the stock and provide them with a basis for purchasing it was the violation.
This is a violation of the ‘act’ on material nonpublic information, you can not act on this or nor can tell anyone the information to act.
Totally, this one felt like a slam dunk to me. (1) there was material non public information (2) he traded on it. of course they add to it that he also did independent research but that’s the whole key; YOU CANNOT TRADE on it, finding ‘research’ to back up the trade won’t help you because you HAVE material non public information and thus you CANNOT trade on it. The research doesn’t bail you out.
Yea, slam dunk. You can’t unlearn non-public information. So you can’t trade on it.
My logic isd … “So what if it benefits the pension plan, it is still material nonpublic info”
yep. there are no exceptions to the rule. Nowhere in the ethics book. Material nonpublic information: you cannot trade. No matter what stuff you try. The best way is to avoid having this information and if you have it, try to convince the company to release it to the market. Because…you…cannot…trade on it!
yeah, he only asked for the research to make it look like he didn’t have material information. clear violation in my book
So I’m not debating the fact that it’s not okay to trade on nonmaterial public information. That’s understood. My point is that a pension buying the stock to block a takeover is a violation even if the material were public. Acting on material non-public information and acting without consideration for the beneficiaries are BOTH violations, I think. What this simple-sounding question was asking was to choose which is worse. The ‘independent research’ was conducted, in the text of the question, in order to support the buy decision, which was already made. The independent research simply said the stock was undervalued, not that it was suitable for the client. Anyway, I spent like waaaaay too much time on this thinking over and over and rereading it…