Analyst visiting a company and a major piece of equipment fails and he overhears workers saying it’s gonna delay production. He then goes and issues a sell recomendation. is this a violation of : No violation client confidentialy dilligence and resonable basis non public information
I would say Dilligence and reasonable basis
Depends if he issues the report solely on the basis of this conversation. If this is the case i would say he doesn’t have a reasonable basis too.
The answer is A due to mosaic theory! Can someone explain?
Pff! The question must have been in a context of MNI, and because the information is nonmaterial (?) and i suppose he has other sources of pertinent information, the mosaic theory applies. I am still a bit doubtful, but maybe the full question gives enough information for coming to this conclusion.
dhysi Wrote: ------------------------------------------------------- > Pff! > The question must have been in a context of MNI, > and because the information is nonmaterial (?) and > i suppose he has other sources of pertinent > information, the mosaic theory applies. > > I am still a bit doubtful, but maybe the full > question gives enough information for coming to > this conclusion. What do you mean MNI? Something about how the information won’t affect share prices directly, but my thought is that this information will affect production, therefore NI, therefore div paid and ultimately shareholders. What am I missing here? Can someone please explain Mosaic Theory properly.
MNI = Material nonpublic information And yes, nonmaterial nonpublic information can be used combined with other sources of information to issue a report, even if all these pieces of information put together come up with material nonpublic information (mosaic theory). Now, even if the information might affect production, NI and dividens and thus the stock price, its source is simply the employers and not executives. Their credibility isn’t enough for the information to be material. If your dentist tells you that the CEO of GE will soon review earnings projections downwards it doesn’t mean that this information is material… you should hear that from a credible source for it to be qualified as such.