Ethics: Is it a violation? investment, interest, material, standard, company

w1977

Suppose a analyst discovers material non-public information about a company and then



1) Makes investment decisions eg sells/buys the securities before anyone else could have known about the material non-public info.

OR

2) Writes a report and circulates it among clients,who had shown prior interest, and prospective clients .


OR

3) Urge the company to make that information public. If Company does not make the info public, what should the analyst do so as not make violate any standard?


I also understand that #1 is a violation for sure. But can is #2 a violation?

Pls share your thoughts!

Matori

1) Violation
2) Violation - you cannot trade or induce others to trade on material-non public information
3) Not necessary a violation. If the information cannot be made public, give the information to your firm's supervisory and compliance personnel so they can establish restricted lists etc. After this, you still cannot take any investment action or alter any recommendations using this information.

Penny-wenny

AndyNZ,

Cool!

Slight rephrasing of #2.
2) Writes a report and circulates it market wide using Top News Dailies? Or in an ideal way, circulates this report globally simultaneously?

Is it a violation still?

kasinkei

Probably. But if the company does not wish to make the information public then I assume they want to keep it a secret. Circulating it would probably break a bunch of other standards if not this one.

Maddin

In regards to 3 you should NOT put the stock on a restricted list like Andy said. Doing this you are giving away that you might have non public info. If you have this information and an unknowing client wants to buy the security you must take the order (even if the news is bad).

Mechanic

The first recommended procedure of compliance mentions you should communicate the information to your firm's supervisory and compliance personnel if public dissemination is not possible.

Unsolicited orders from clients should continue to be taken, even if the security is on the restricted list.



Edited 1 time(s). Last edit at Thursday, June 2, 2011 at 07:47AM by AndyNZ.

dmar

From my understanding you DO NOT go to your supervisor and inform him of the information. The information is material and non public, if you tell your supervisor you are spreading this news and violating the standards. The first thing the analyst should do is try to make the information public by asking the CEO to disclose the information through a news announcement. It sounds dumb but I have done multiple questions regarding this.

FVPV

Yeah I have seen questions with answers like that too, it is conflicting. Check page 52, reading 2 in the CFA curriculum.

I think it is best to go with the curriculum.