Anna Nichols is a research analyst preparing a report on Enterprise Company. In order to ensure accuracy in her report, she sends portions of the report to the Chief Financial Officer (CFO) of Enterprise to allow him to check for factual errors. The CFO makes some corrections, which Nichols checks and agrees with. The CFO also sends Nichols several pages of market analyses that appear favorable for Enterprise. Nichols checks the analyses for accuracy and includes a summary of them in her report, pointing out that the data came from Enterprise. Nichols has: A) violated the Standards of Professional Conduct by including the data from the CFO in the report. B) not violated the Standards of Professional Conduct but may have violated Research Objectivity Standards. C) violated the Standards of Professional Conduct by sending the report to the CFO before sending it to her clients. Your answer: A was incorrect. The correct answer was B) not violated the Standards of Professional Conduct but may have violated Research Objectivity Standards. It is acceptable to send the report to management to check for factual errors and to use careful judgment in including the data provided by Enterprise (note that this was disclosed). Although Nichols has not violated the Standards of Professional Conduct, the Research Objectivity Standards would prohibit Nichols from sending the full report to the CFO. To comply with the Research Objectivity Standards, Nichols should only send the sections of the report containing facts about the company for verification. Doesn’t make sense to me. It clearly says in the question that she only sent portions of the report to the CFO. The reason I chose A was because maybe the CFO’s report might have included some material non-public info, which obviously cannot be used. What your take on this?
“also sends Nichols several pages of market analyses” IMO, the above statement indicating “market analyses” gives the reader that it is not non-public/material. aslo she cited the source. If you can infer from the question, there is non-public, material info then you’re right. But that does not appear so.
Hi FRM, thanks for the reply, but unfortunately, I didn’t quite get it. The main issue that the answer focuses on is about the analyst sending the report to the management to check for factual errors. They say she has violated the research objectivity standards, which obviously doesn’t seem to be the case because it clearly mentions in the question that she sent only portions of the report. On the other hand, she includes the CFO report (although she mentions it), which would seem like a bad idea because it could contain material non-public info, thus violating the professional conduct standards. In conlcusion, no violation of research objectivity standards, violation of professional conduct standards. Answer indicates otherwise. TIA again.
>>>In conlcusion, no violation of research objectivity standards, violation of professional conduct standards. Answer indicates otherwise. “http://www.cfapubs.org/doi/pdf/10.2469/ccb.v2004.n2.4006” Research objectivity standards. Research analysts must be prohibited from: Sharing with, or communicating to, a subject company, prior to publication, any section of a research report that might communicate the research analyst’s proposed recommendation, rating, or price target;