tricky ethics - sample exam 2 afternoon, Q11

Paul James, CFA, is a retail stock broker for a national financial services corporation. James’ client base is mainly comprised of small to medium-sizeed individual accounts. James notices that one client in particular, Chet Young, Ph.D., is particularly adept at picking undervalued stocks. James decides to wathch Young’s trades and mimic them in his own account. James: A. is inviolation of Standard VI (B) Priority of Transactions because he is front running the client’s account. B. is in violation of Standard V(A) Diligence and Reasonable BAsis because he doesn’t have a reasonable basis his trades. C. is not in violation of any Standards. D. Is in violation of Stand I (D) Misconduct because he has misappropriated cofidential client informaiton. I choose B. The answer sheet says C. Cannot understand!!! Comments welcome!!

I agree with you

he traded his own account, so can do whatever he likes, even if that is using info that he picked up during work. As long as he hasn’t used non-public material info, he’s not made a violation. I notice CFA Ethics seem to come down hard on you if you do unethical things during work hrs/related to clients accounts/etc, but don’t seem to care what you do in your personal life (within reason)… atleast that’s the pattern I’ve seen so far

C is indeed correct. James is mimicing (sp?) for his OWN account. Not the clients. Hence no violation. Tricky bastards!

i look at this and say you can’t violate diligence and reasonable basis against yourself. he’s not trading for a client. he’s looking at a client’s trades and making the same picks for his own account.

Surely the main thing here is that it’s his own account. No client money, the only dodgy thing is that he’s acting on information that is not commonly availble i.e the details of Young’s trades so I would have probably chosen D on that basis.

I see. it likes suicide! it is not illegal!!! thanks.

NEED to read MORE carefully… moral of the story

That’s definitely rule number 1 for tomorrow READ THE QUESTION PROPERLY!!!