You are a fund manager in Laxitania, a country with no securities laws. While changing at your local tennis club you overhear a man you know to be a director of one of the country’s biggest mining companies boasting to his friend of the discovery of extensive gold deposits that are shortly to be publicly announced. Should you trade on this information? A Yes, because to fail to do so would be to fail to act in your clients best interest B Yes, because to fail to do so would be to fail to act in your own best interests C No, because this information is inside information D No, because this information is illegal in LAxtitania I strongly believe the answer to this question to be C but according to 7 city the answer is A. Any thots Cause all these contradictions are driving me crazy
I think the key is in the question “Should you trade on this information?”. Doesnt say to trade before the information become public. So under this assumption A is correct.
That is a horrible question. Where is it from? A is wrong for two reasons. 1) it is material non-public. 2) there is no indication in the question that you have validated the information so you do not have a reasonable basis.
C. The information is material and non-public. If the information become public you do not have any advantage over anybody else by trading on the information.
Prometheus, can you contact 7city and check if they made a mistake? C should be the proper answer.
You are a sell side analyst. You produce a report recommending a stock based on work done by your colleague, Jane and by a model developed by Prof Smith at the University of Dementia Virginia. You have tweaked the model and believe it would not have produced the results it did but for the tweaks. Your report goes out solely in your name have you violated the standard against plagiarism A No because the model was tweaked B yes in respect of Professor Smith’s work but no in respect of Jane’s work C Yes in respect of Professor Smith’s work and yes in respect of Jane’s work D Yes in respect of ane’s work but no in respect of Professor Smith’s work
B correct.
C? You knew the original idea is from Prof Smith. So he should get the credit for his work as well.
C. Both are violations if original person is not attributed as the source.
If you use the research of a colleague (working in the same company) you dont need to report his name.
i think the only way to explain this violation is unreasonable research basis…cant remember what its proper full term of this…!!! any suggestion?
On the first question at the top, is the point that you do not have “CFA” after your name and there are no securities laws in this country. Therefore, your actions are not dictated by the code or by any other legislation. Therefore, there is no prohibition on trading on the info. So you should - you’ll make money for your clients out of it. It really illustrates what the world was like prior to a CFA code or a civil/criminal penalty for market abuse/insider dealing. Obviously if the question started “John Smith, CFA, is a fund manager in Laxitania…” or “John Smith is a fund manager in USA…”, it would be different.
As long as the request for trade comes from a client who is not aware of this information, you should honor that request. What you should not do is make investment recommendations based on this insider information or trade on accounts where you are a beneficiary.