Scott Marsh is a research analyst for a brokerage firm following the computer industry. Joe Perry is Marsh’s former college roommate and is the head of technology for Mercury, a large software company. Perry informs Marsh on Tuesday that in two days the company will be making an official announcement that its release of its newest version of its software will be moved up one month, from October 1 to September 1. The announcement will be surprising to the industry and will likely be met with skepticism because the company has had trouble meeting release dates in the past. Perry assures Marsh that he is certain that they will meet the September 1 date. Marsh considers Perry to be very honest and highly competent. Marsh should: A) immediately put out a report recommending the stock, but waiting until the official announcement to state his reasons. B) wait until the public announcement is made, then release a report stating that he is sure that the company will make his release date, but not disclose the relationship with Perry. C) wait until the public announcement is made, then release a report explaining that he believes the company will make the release date, disclosing that one of the reasons for his opinion is Perry is a friend of his. D) produce his research report in two days based solely on the official announcement, not taking into consideration the information from Perry.
I said D as well. Here is the answer from the qbank though: Your answer: D was incorrect. The correct answer was C) wait until the public announcement is made, then release a report explaining that he believes the company will make the release date, disclosing that one of the reasons for his opinion is Perry is a friend of his. The research report cannot be released until the official announcement is made, otherwise he will be violating the Standard on prohibition against the use of material nonpublic information. Once it is made public, Marsh can disclose the nature of the conversation without violating that Standard because the information will now be public. However, he should disclose the relationship with Perry or he will be violating the Standard on communications with clients and prospective clients.
How reliable are schweser answers?
Offtop: does it actually work? It’s just a bit hard for me to picture mentioning something like “by the way, he used to be my roommate back in 90-s” in the official report
the roommate is highly competent… i duno man…
sounds at least strange plus the material basis of recommending the stock…
Yeah, I think this is poorly written question. But my first instinct was C. Although I would have liked C a lot better if it had said, “disclosing that one of the reasons for his opinion is based on a convincing converstation with Mercury’s head of technology.”