This is the first 2 paragraphs of the q
Christian Mathew, CFA, is an equity analyst specializing in the beverage industry for Gupta Asset Managers (Gupta), a portfolio management company based in Mumbai, India. Mathew is planning a trip to Sri Lanka to research the tea industry. Murali Premadosa, CFA, known as “Prem,” is a research analyst for a stock broking company, Ashoka Brokers, headquartered in Colombo, Sri Lanka. Mathew contacts Prem to help arrange visits to specifically identified tea estates of publicly traded companies in the highlands of Sri Lanka.
Prem, wanting to enhance the business relationship with Gupta, arranges for all of Mathew’s Sri Lankan expenses to be paid for by Ashoka. These costs include food, hotel, and transport. This arrangement is based on the understanding that all security transactions resulting from Mathew’s trip to Sri Lanka will be executed through Ashoka. Ashoka’s commissions are typically similar to its competitors but it can take a few extra days to execute larger volumes of trades because Ashoka is new to the brokerage business. Prem sets the itinerary, with plans to visit a minimum of six Sri Lanka tea companies in the three tea-growing regions. Mathew agrees to the visits and asks Prem to create a list of questions to ask the management of each company to which he will add his own questions.
Is Prem’s arrangement to enhance business relations most likely consistent with the CFA Institute Code of Ethics and Standards of Professional Conduct?
- No, with regard to independence and objectivity.
- No, with regard to best execution.
Answer is 2. I understand why its 2 but I’m wondering about 1 here. Prem arranged for all the expenses. The q provides no indication about how easy/difficult it would have been for Matthew to make his own arragements. This sentence is what is tripping me up “This arrangement is based on the understanding that all security transactions resulting from Mathew’s trip to Sri Lanka will be executed through Ashoka.” How is this not a problem? Can someone explain why it cant be 1