Ethics question & financial hardship

Hi guys,

I just did the Schweser Ethics CCs, Question 19. on page 81. Basically the question, is whether an analyst can trade against the recommendation of his firm. The solution says © is correct, i.e. only one action is a violation and trading AGAINST the recommendation of the firm is allowed. Now I am sure, one is only allowed to trade for his own account against the rec. of a company only in financial hardship. Am I wrong? I looked up Level II books and original CFAI, I was not able to find anything… Please help me finding my ethical peace. Thanks in advance.

If you trade because you need cash, you will have to sell positions that you would recommend buying (the reason why you had them at all).

So that’s no problem. It’s only problematic if you sell recommended securities to buy other ones. This would contradict your recommendation.

The example is: “W. sells 500 shares of T (comp has a buy recommendation) and W buys 200 shares of H and the following day issues a buy recommendation on H”.

According to the solution, only the latter part is a violation. However, for me its also the sale of the shares.

Ok, I thought that was a violation. I guess if there is no front running, you are basically free to trade since it’s your company’s recommendation and not yours. But these are the reasons, why I never score ethics with 100% in mocks, no matter how much I study for it.

Is there nobody with an idea? I am sure this has been covered but I am unable to find any source… would be much appreciated.

*bump* Excuse me.

I had the same issue with this question. Anyone have an answer? I thought the rule was you couldn’t trade against a recommendation unless you were in financial hardship. But the answer to this question (it’s CFAI not schweser) seems to contradict this.

common sense. can also be based on circumstance… lets stay you had to sell to rebalance to your optimal AA. Then you could sell it.

You’re mistaken. This isn’t the case in CFA text, Schweser, or anywhere. You can trade your own account basically however you want, regardless of the firm’s view, as long as you do not violate the SOPC. Just because your firm’s analyst rates a stock a Buy does not mean that you could not A) need to trade to rebalance, B) disagree with the analyst, c) need cash, etc.

i think this has to do with the “firm” vs. say if you were the analyst putting out that rating. you work at a bank that covers a wide universe of equities, you can sell AAPL even if your firm technically rates it as a buy.

I believe that if you were the analyst that rated it a buy, then you couldn’t sell the stock outside of finanical hardship however.

Probably the conflict firm rating vs. (own) analyst rating is the solution to that matter. I.e. you cannot trade against your own recommendation with the exception of financial hardship but it is fine to trade against your firm’s rating.

However, it is odd I could not find anything in the CFAI text / Schweser on that matter… I am sure it was in the curriculum. Thanks for your views.