Ethics Question research, receive, published, extensive, afternoon

bleach

X, CFA has a buy recommendation on ABC Corporation. He has done extensive research and published a report in which he has revised his recommendation to sell. The report is still with him and he plans to disseminate it next morning.

Next morning, he sends the updated report and revised recommendation to all the firm's clients by courier simultaneously. Most of the clients will receive the report after 24 hours.

On the same afternoon, a client calls up X, CFA and states that "given that you have a buy recommendation on ABC Corporation, I would like you to purchase 50000 stocks of the firm for my portfolio."

What is best course of action for X, CFA?

A) Place the order as told by the client, without revealing the change in recommendation, since other clients have not received the report yet and hence the recommendation is still considered material nonpublic information.

B) Advise the client that the recommendation has been changed as per a research report and that the client will receive the research report by evening/next morning.

C) Neither of the above.

giants2010

B. He has to do it, document it, and get ready for a lashing. If he reveals the new rating, he'll be in violation of fair dealings.

wilslm

Oop. I meant to write he should simply advise the client of the change and allow the client to make their decision.

chandsingh

Yeah, I'm talking in circles cause this question is a bit unclear. Schweser perhaps? Those ethics questions are garbage!

Client calls afternoon prior to dissemination - Do not reveal since all clients do not have the information. Answer A - and get ready for lashing.

Client calls afternoon after dissemination, yet has not checked their email - Reveal since this is now public and open to all clients. B.

CPATrader

It's obviously not A. I guess since the report has been issued, he could advise the client of the change but perhaps it's not perfectly ethical therefore c?

I'm curious to know the answer.

iteracom

QuantJock_MBA Wrote:
-------------------------------------------------------
> Client calls afternoon after dissemination, yet
> has not checked their email - Reveal since this is
> now public and open to all clients. B.


The information was NOT disseminated through email. It was disseminated through courier.

needhelp1700

B) Advise the client that the recommendation has been changed as per a research report and that the client will receive the research report by evening/next morning.

I think as long as the analyst does not communicate what the actual change is, B is the answer.

can you guys post the right answer?

- Guille

ppls

The correct answer has to be B.

The client has indicated that he still believes there is a buy recommendation on the stock so hasnt recieved the updated recommendation. Therefore the analyst is duty bound by Standard III(B) to inform the client of the changed recommendation before accepting the order.



Edited 1 time(s). Last edit at Monday, February 14, 2011 at 08:12AM by xx8801.

yalo

Correct answer is A) Place the order as told by the client, without revealing the change in recommendation, since other clients have not received the report yet and hence the recommendation is still considered material nonpublic information.


Most of the clients will receive the report after 24 hours. Hence they have not had the opportunity to act on the new recommendation. Recommendations and Research reports are considered Material Non Public information till the time they are disseminated AND the clients have had the opportunity to act on it. Trading by employee for personal account/leaking the recommendation before other clients have had the opportunity to act on the revised recommendation would be in violation of Standards.

DSquaredSlim

AAARRRGHH!!! I guess I should review Ethics

- Guille