Schweser Mock - Ethics

CFA Level I
#1

Paul James, CFA, is a retail stock broker for a national financial services corporation. Jame’s client base is mainly comprised of small to medium-sized individual accounts. James notices that one client in particular, Chat Young, Ph.D., is particularly adept at picking undervalued stocks. James decides to watch Young’s trades and mimic them in his own account. James:

A. is not in violation of any Standards.

B. is in violation of the Standard on priority of transactions because he is front running the client’s account.

C. is in violation of the Standard on misconduct because he has misappropriated confidential client information.

Correct Answer A.

James is not in violation of the Standards. To comply with Standard VI(B) Priority of Transactions, members and candidates must give transactions for clients and employers priority over their personal transactions. In this instance, James did not adversely affect the client’s interest because the client’s trades were executed before James copied them. He has not acted fraudulently or deceitfully.

My comment: Isn’t it an assmption that Young’s trades are executed before James’ trades on his own account? The question never talked about sequencing so I picked B initially.

Your comments?

#2

My perception is that he cannot apply these trades to clients because he would be in violation of not practicing dillegence of tested analysis for his clients on trades made in their accounts. HERE is applying the trades to his own account and assuming the risk himself having done no prior research except tracking the history of an individual’s stock picks. ----- This was my thought process on this question when I came across it.

#3

Thanks. That makes sense.

#4

ok… i wouldve for sure got this one wrong if it came on the exam…