Suppose X works in a firm as an analyst, and gets a complete list of projections of the company’s future strategies and merger plans for the next 7-8 months or so (material non public info). After one month, he leaves the firm and speculates on the price of the firm using a) current stock forecasts from Bloomberg and other financial journals (public info) and b) his own knowledge of the firm’s plans in the future which he has memorized.
So in this case, he is making investments with regards to the firm based on the research he has done using publicly available info and his own insider knowledge (from memory). Is he violating any standard? If yes, how?
He’s using knowledge of the firm’s plans (which he memorized), which, you note, is material nonpublic information. If he uses that, the violates Standard II(A) – Material Nonpublic Information.
Mosaic Theory involves the use of _ nonmaterial _, nonpublic information, combined with public information (material or not), and it’s OK. It doesn’t apply here because the nonpublic information isn’t nonmaterial.
Point noted, however I do remember reading somewhere that if a person has left the firm, it’s OK for them to make investments using the information from memory as long as they do not posess firm’s actual data (spreadsheets, forecasts charts etc).
Materiality has nothing to do with the source of the information. It’s material if it would affect the price of a security, or if a reasonable investor would want to know it before making an investment decision.
That is ny doubt sir. If it is given in a question tha. information is obtained from lenders and suppliers and the analyst combines this information to change his recommendation from buy to sell. And nothing else is mentioned . What should v assume it to be ? Material or non material?
The point of the exam is not for you to determine where the dividing line between public and nonpublic lies (just as the point of the exam is not for you to determine where the dividing line lies between a small gift and a large gift); the point of the exam is for you to show that you know what to do when the nonpublic information is material, and what to do when it is not material.
You won’t have to assume it’s material or not; that will be clear. You won’t have to assume it’s public or not; that will be clear.
One more doubt magician sir. Initial recommendation must be made to clients that indicate prior interest. I understand that. My doubt is if there is a subsequent change in recommendation. this change should b informed to all the clients or only those clients to whom initial recommendation had been made