Reading - 2-II - LOS a: Q6 - Q8

6、A CFA Institute member is a U.S. citizen living and working in a foreign country. That country has no laws against insider trading. Based on this information, the CFA Institute member may:

A)   not trade using insider information based upon the rules of the SEC.

B)   not trade using insider information based upon the CFA Institute Standards.

C)   trade using insider information as long as it is not with a client with laws against insider trading.

D)   trade using insider information.

The correct answer was B)

CFA Institute Standard II(A) prohibits trading using insider information. A member may not trade using such information regardless of the rules of the country where he/she lives.

7、Which one of the following least accurately describes the CFA Institute Standard about using material nonpublic information?

A)   An analyst may not use material nonpublic information secured from sources that misappropriated the information.

B)   An analyst may use material nonpublic information as long as it has been developed under the Mosaic Theory.

C)   An analyst using material nonpublic information may be fined by CFA Institute.

D)   An analyst may violate this Standard by passing information to others even when it has been obtained from outside the company.

The correct answer was C)     

Members may not use material nonpublic information for trading purposes unless, the information was developed under the Mosaic Theory. There is no provision for CFA Institute to issue fines to members.

8、An analyst provides services for a charitable organization and in return gets free membership in the organization. Part of her job is to manage the liquid assets of the organization, and those assets include stocks. Her supervisor in the organization calls her and tells her to buy a certain stock for the portfolio based upon insider information from a board member in the organization. The analyst objects, but the supervisor says this is what they have always done and sees no reason for changing now. The analyst complies with the request. With respect to Standards IV(A), Loyalty to Employer, and II(A), Material Nonpublic Information, the analyst violated:

A)   only Standard II(A) that prohibits insider trading.

B)   both Standards IV(A) and II(A).

C)   only Standard IV(A) requiring duty of loyalty.

D)   neither Standard since she is working for a charity.

The correct answer was A)

An employee/employer relationship does not necessarily mean monetary compensation for services. Complying with the request is a violation of II(A) which prohibits trading on insider information.  Standard IV(A) Loyalty deals with going into business for yourself, leaving an employer and continuing to act in the employer's best interest until their resignation becomes effective, and whistleblowing which means that the member's interests and their firm's interests are secondary to protecting the integrity of capital markets and the interests of the clients.