#1. An analyst receives a research report from a colleague. The colleagues report has an elaborate table with performance data on publicly traded stocks. The colleague says the data in the table consists of measures provided by Standard & Poors. The analyst finds the table a useful reference for a report she is writing. She uses several pieces of data from the table. The analyst is potentially in violation of: A) Standard V(A) if she does not first verify the data in the table is accurate. B) no particular standard because this is appropriate activity. C) Standard II concerning the obligations to the capital markets. D) Standard I© concerning the use of the work of others. #2. A stockbroker who is a CFA Institute member is called on the telephone by the CEO of a large company. The CEO asks to buy shares of the CEOs company for the accounts of the CEOs children. In the course of the conversation, the CEO says this will really pay off when the upcoming takeover goes through. The stockbroker checks her sources and finds no information about the takeover. In this case the broker should: A) only execute the order in compliance with Standard III(A), Loyalty, Prudence, and Care. Since the client is buying the stock for the children, there is not a problem. B) execute the order for all clients as required by Standard III(B), Fair Dealing. C) do none of the actions listed here. D) first execute the trade for the children and then use public information to recommend the stock to other clients.
- I am between B and D. It says elaborate table, so I’ll go with D. Maybe that colleague went to all the trouble and needs to get recognized. 2. C because of non public information?
#1 - I will not answer as I got this one the other night and got it wrong once already. #2 - C
my guesses… 1. D - plagiarism 2. C - words from the CEO were material non-public info
i’m with D and C also.
- D The analyst should have verified the source. Is he/she did and it turned out it was coming from S&P, B would have been the answer. 2.C No Explanations needed I think? I should add that I just had 6 beers and shit loads of wings. Kind of sad what CFA do to you. 6 beers and analystforum is what comes to my mind…
Oh, crap, just reread the question. I guess A on the first one then (whatever standard V is)
#1. Most of you got this one wrong. I think this is a very good question. I had gone with B, but the correct answer is A. The correct answer was A) Standard V(A) if she does not first verify the data in the table is accurate. Since the data in the table supposedly comes from Standard & Poors, a recognized data source, the analyst does not have to cite the source of the data. However, the analyst needs to use reasonable care and verify that the data is accurate by going back to the source. Had the analyst printed the table prepared by her colleague without acknowledgement, the analyst would have violated Standard I©, Misrepresentation. #2. The correct answer was C) do none of the actions listed here. Doing any of these actions would be a violation of Standard II(A), Material Nonpublic Information. Members and Candidates must not act or induce others to act on material nonpublic information. I know #2 looks vry simple and I don’t know why I couldn’t nail this one. I felt that it’s not that the stockbroker is buying those shares after coming to know about the merger. He was going to buy them for the CEO’s kids’ account anyway. So, how does it matter that the CEO told him material non-public info? It’s not that he’s acting on the material non-public info. He’s just doing his job…am I way out of line here? Can someone set me straight? Thanks.
I thought the answer for the first one is B, because the analyst can assume the table prepared by her colleague to be correct, unless there is an obvious reason not to do so. I read this somewhere off the book, but cannot remember exactly where. For question2, I did not think A is right, because I do not see why it matters if the stock is purchased for the children or CEO himself.
singlesong80 Wrote: ------------------------------------------------------- > I thought the answer for the first one is B, > because the analyst can assume the table prepared > by her colleague to be correct, unless there is an > obvious reason not to do so. I read this somewhere > off the book, but cannot remember exactly where. > > For question2, I did not think A is right, > because I do not see why it matters if the stock > is purchased for the children or CEO himself. I think you are talking about in-house research, where you can make recommendations based on the research done by your colleague or someone else in the firm.
For #1 I had originally guessed B as well when I took that question. The real answer makes sense and the question makes you think a little harder about what is actually going on. I feel like that is a key thing to remember at L2. All of this stuff we are learning is applicable to real life situations and I think CFAI wants us to think of it in that way. So realistically if a friend gives you a report with a chart from S&P, you should probably double check the facts before you start using the data in his report for your own. I would hate to issue a report with incorrect numbers just because I was too lazy to double check something.
I originally guessed A and C. 1) It’s just common sense that you should check any information given by someone else unless it’s directly from the source. If the other analyst modified the tables, there are potential mistakes and it’s reasonable to go back recheck the S&P data that you intend to use. Otherwise, you have not been diligent and thorough as the standard VI(A)states. 2) Doesn’t really matter whether he’s buying shares for himself or his kids. He is basing his trade on material nonpublic information and you should not trade on this information or cause others to trade unless the information has been publicly dissimated. Meaning that you should advise the CEO to make the information public and after the information has been made public execute the trade and if necessary carry out trades for other clients.
i’m going A and C and i hope i’m not choosing A because i saw other people’s answers. if the table is from S&P, then it really doesn’t belong to the other analyst. there was something similar to this where an analyst liked a simple stock ranking system some other analyst did and then took it and changed it moderately to make it his own. and there he was supposed to give credit. but in this case, there’s really no intellectual property the way the question is written… and the analyst should definitely check the numbers himself. who’s he going to point to if the numbers are wrong?? 2nd question seems completely straight-forward. although it would be tougher if it asked what he should actually do.
oops, didn’t realize a colleague gave the table. i mean a colleague could be an assistant. i think it’s fine as is then. now if the colleague had added any value to the table, then it woud be different. AND, there’s still a chance that the analyst should be checking the #'s… but i’ll change to B (and thanks to earlier posters who may have saved me… first gut reaction is good too, but not when you didn’t pick up on the wording).
I picked B (do none of the above) for the second question since trading with material nonpublic information is in obvious violation. What if, however, the CEO did not explicitly state the takeover, and the CFA only suspects so? Is it still in violation to execute the trade for him?
gz2nyc Wrote: ------------------------------------------------------- > I picked B (do none of the above) for the second > question since trading with material nonpublic > information is in obvious violation. What if, > however, the CEO did not explicitly state the > takeover, and the CFA only suspects so? Is it > still in violation to execute the trade for him? I don’t think a MM has to go so far in investigating the reason before a trade request. But if it is blatantly obvious…that’s another story.