I was surprised to find this problem / solution. Jack accidentally overhears from a nearby conversation involving a director talks that the mining company will soon announce a huge new gold discovery. According to the answer, he should trade if he determines it to be a strong enough basis, because although it was inside it does not relate to a tender offer. But I thought the rule was if it’s non-public and material (which seems to the case) you can’t trade. Any thoughts?
can you post the whole question and possible answers?
Should you trade? a. Yes, because to fail to do so would be to fail to act in your clients’ best interests b. obviously wrong answer c. No, because this is insider information d. obviously wrong answer — answer is A, yes, you should if it’s in the best interests of your clients. but i still have some uncertainty about the logic…
is this a schweser Q? If so, what’s the id#? It would help if you post the whole question, not just the answers.
No, it’s not Schweser, the full question is: While changing in the gym locker room, Jack Brown accidentally overhears a nearby conversation in which Mining Company A’s CEO tells his friend that the company will soon announce a huge new gold discovery. Jack is a portfolio manager and holds a significant portion of Company A’s stock his biggest portfolio. Should Jack trade on this information? a. Yes, because to fail to do so would be to fail to act in your clients’ best interests b. obviously wrong answer c. No, because this is insider information d. obviously wrong answer
Where is this question from… besides “not Schweser”? The correct answer has got to be C. I just don’t buy that A is correct by any stretch.
Not only would A not be correct due to trading on mat. nonpublic info… but also in this case due to - Diligence and Reasonable Basis
Yeah, that was my thought too- there are no exceptions to the “material” AND “nonpublic” prohibition of trading - even if the you did not intend to hear this info and the CEO is carelessly bragging about it. And I just re-read this section of the Handbook. you must be right - I’m throwing this set of practice q/a’s away. Sorry if this bad question bothered anyone. And further sorry, but I’d prefer not to mention the source.
Definitely C. A situation where he could trade though is for example if the info was very specualtive or coming from an unreliable source. Clearly, this is not the case here. Don’t worry, txcany, you got this right. It’s got to be C.
Definitely C, no question about it.
Agreed, thanks everyone!