CFO tells you in confidence that next week’s earnnings are so bad, much worse than expected. Next day, a client calls and asks you to buy a large amount of the company’s stock. What do you do? I’m not sure I saw an adequate answer to this.
you buy it for him. document that it was a directed purchase, that you asked him if he was sure and knew the risks. Then you get ready to get yelled at when the stock drops. This is my guess at the answer, not backed up by text.
material info. Can’t disclose to client. You will have to put that order… Is restricted window apply here?
Unsolicited order, just do it. You would be guilty of violating MNP standard if you tip the client off (ie Martha Stewart’s advisor).
I would also think you would need to urge the CFO to make the info public.
> I would also think you would need to urge the CFO to make the info public. definitely, this is stated as required when faced with MNPI, but what is your action with the client? There can only be two ways: (1) Buy, or (2) Refuse to buy. Personally, I would recommend to him that he reconsider as I believe there is a rumor that this stock is no good.
I realize in real life we may take a different route. Especially if this client is your brother or something, so you subtly tell him, “Are you sure, cause I heard some speculation about this stock…” However on Saturday the 6th, be sure to accept the unsolicited order as you cannot hint that you know inside info and encourage the CFO to make said information public.
I’d just dodge his calls for a few days…avoidance is usually the best action. Also, urging your CFO to go public with bad earnings and suprise people a week early is just weird. So the answer is “buy it”, agreed?
Agreed. I think for the exam, just buy it. Now let us assume that the client asks your opinion on the stock, for which you currently have a buy recommendation. Now what do you do?
you get ready to lose a client…good example of when concepts dont transfer to practice.
tvPM, forget real life, how do you answer this on the exam?
Do I have multiple choices?
I’ll make up some: a. Inform the client that you have a buy recommendation on the stock. b. Inform the client that you have a buy recommendation on the stock, but that you are about to re-evaluate the recommendation (up, down, or same). c. Inform the client that you really have no opinion on the stock.
B if indeed you were going to reevaluate the stock (which is acceptable if earnings are about to come out next week, and if the sole reason you are saying it is not because of the CFO’s comments) A otherwise, as it is the truth C is a lie to the client as your opinion on the stock is a buy recommendation.
Good, but I think b is a problem becauase it might be a violation of fair dealing! Other clients are not as privileged as the client that called you.
yes, but saying you are going to revise a recommendation doesnt give him/her any more information than any other client. There is no edge to that. As long as you disseminate your changed reco in proper fashion you will be ok with fair dealing. As long as any client (in that service level) can call and ask you the same question then I think it is fine, you are not being selective. Enough junky ethics Q’s for today, appreciate the practice and banter however.