An analyst meets with a new client. During the meeting, the analyst sees that the new clients portfolio is heavily invested in one over-the-counter stock. The analyst has been following the stock and thinks it will perform well in the long run. The analyst arranges through a brokerage firm to simultaneously sell a large number of shares of the stock via a series of cross trades from the new clients portfolio to various existing clients. He arranges the trades to be executed at a price that approximates the current market price. This action is: A) a violation of Standard III(A), Loyalty, Prudence, and Care. B) a violation of Standard III(B), Fair Dealing. C) not in violation of the Standards. D) a violation of Standard V(A), Diligence and Reasonable Basis.
D?
a
C? It might be prudent to diversify for the client in question and since he likes the stock it would be appropriate for the other clients. Cross trade will reduce total execution costs.
my guess is D
mwvt is correct. it’s C
C
its market manipulation because a large volume trade in OTC will shock the stock price. By using cross trade, he is avoiding this shock and hence is manipulating the market.
Correct answer is C
mwvt… someone else had posted this question before…so i knew it was C…but i don’t completely understand why… care to elaborate…
With no information on the suitability of this stock for the other clients, this is a poorly framed question.schweser ,i presume?
exactly…my first thought when i read the para (without looking at the answers)…was a violation of suitability…
Is it just me or all these ethic questions are from Level I schweser qbank?? are they same this year?? havent started on qbank yet?? Anish
mumukada Wrote: ------------------------------------------------------- > mwvt… > > someone else had posted this question before…so i > knew it was C…but i don’t completely understand > why… > > care to elaborate… "An analyst meets with a new client. During the meeting, the analyst sees that the new clients portfolio is heavily invested in one over-the-counter stock. " Problem. The client has most of their net worth riding on one stock Since OTC probably volitaile. “The analyst has been following the stock and thinks it will perform well in the long run.” He/the firm likes the stock so it makes sense to have other firm clients buy it. If they didn’t like the stock this would be a problem. Then you would have an issue with fair dealing…I would think. “the analyst arranges through a brokerage firm to simultaneously sell a large number of shares of the stock via a series of cross trades from the new clients portfolio to various existing clients.” Broker arranges that it be purchased by some existing clients. Not all. "He arranges the trades to be executed at a price that approximates the current market price. " Since about market price it is fair and cross trades will reduce execution costs. I haven’t seen this question so I don’t know exacty how the answer was explained.
cross trades decrease execution costs, so he is simultaneously diversifying a client’s portolio while getting best execution at lower costs for other suitable portfolios. C