Ron Taylor, a CFA Level I candidate, trades cotton contracts for a small commodity broker. Taylor convinces a government cotton inspector to issue a warning that the Texas cotton crop is in danger from insect infestation. The price of cotton soars. Taylor immediately shorts cotton futures. Once the position is created, the government inspector issues a second report reversing his original opinion and cotton prices plummet.

Cedric Sims, a CFA Level III candidate, would like to generate a tax loss on a security held in his personal portfolio; however, he believes the security has significant upside potential. To avoid the wash sale provisions of the income tax code, Sims sells the security and simultaneously creates a synthetic long position using derivatives.

1、Which of the following statements concerning Taylor’s and Sims’s conduct is TRUE?

A)   Taylor is in violation of Standard II(B), but Sims is not in violation.

B)   Both Taylor and Sims are in violation of Standard II(B).

C)   Neither Taylor nor Sims is in violation of Standard II(B).

D)   Sims is in violation of Standard II(B), but Taylor is not in violation.

2、Which of the following is a violation of Standard II(B), Market Manipulation?

A)   Implementing a trading strategy to exploit differences in market power and information.

B)   Selling a security and immediately purchasing a similar security in order to minimize income tax liability.

C)   Overstating an earnings projection in order to increase the price of a stock.

D)   Engaging in a block trade to limit the effect on the price of a thinly traded security.

3、All of the following are violations of Standard II(B), Market Manipulation, EXCEPT:

A)   exploiting differences in market inefficiencies.

B)   securing a controlling interest in an equity security in order to influence the price of a related derivative instrument.

C)   spreading false rumors about a firm to encourage trading by others.

D)   disseminating misleading information about the development of new products and technologies.

4、Mark Williamson is “bearish” on ABC Manufacturing Company. Williamson is so convinced that ABC is overpriced, two weeks ago, he shorted 100,000 shares. Today, Williamson is “surfing” several popular investment bulletin boards on the internet and posting false derogatory comments about company management. According to Standard II(B), Market Manipulation, Williamson has engaged in:

A)   transaction-based manipulation, but not information-based manipulation.

B)   both transaction-based manipulation and information-based manipulation.

C)   information-based manipulation, but not transaction-based manipulation.

D)   neither transaction-based manipulation nor information-based manipulation.

5、Steve Waters, a CFA Level I candidate, has decided to enter into a long position of Farmco stock. Since Farmco is thinly traded, Waters is concerned the order will overwhelm the liquidity of Farmco and the price will surge. Waters engages in a series of block trades in order to accomplish the purchase. According to Standard II(B), Market Manipulation, Waters has engaged in:

A)   neither transaction-based manipulation nor information-based manipulation.

B)   transaction-based manipulation, but not information-based manipulation.

C)   both transaction-based manipulation and information-based manipulation.

D)   information-based manipulation, but not transaction-based manipulation.

答案和详解如下：

Ron Taylor, a CFA Level I candidate, trades cotton contracts for a small commodity broker. Taylor convinces a government cotton inspector to issue a warning that the Texas cotton crop is in danger from insect infestation. The price of cotton soars. Taylor immediately shorts cotton futures. Once the position is created, the government inspector issues a second report reversing his original opinion and cotton prices plummet.

Cedric Sims, a CFA Level III candidate, would like to generate a tax loss on a security held in his personal portfolio; however, he believes the security has significant upside potential. To avoid the wash sale provisions of the income tax code, Sims sells the security and simultaneously creates a synthetic long position using derivatives.

1、Which of the following statements concerning Taylor’s and Sims’s conduct is TRUE?

A)   Taylor is in violation of Standard II(B), but Sims is not in violation.

B)   Both Taylor and Sims are in violation of Standard II(B).

C)   Neither Taylor nor Sims is in violation of Standard II(B).

D)   Sims is in violation of Standard II(B), but Taylor is not in violation.

The correct answer was A)    

Taylor is in violation of Standard II(B), Market Manipulation, by creating a scheme that caused others to trade on false information. Sims is not in violation of Standard II(B). The Standard does not prohibit transactions conducted for tax purposes.

2、Which of the following is a violation of Standard II(B), Market Manipulation?

A)   Implementing a trading strategy to exploit differences in market power and information.

B)   Selling a security and immediately purchasing a similar security in order to minimize income tax liability.

C)   Overstating an earnings projection in order to increase the price of a stock.

D)   Engaging in a block trade to limit the effect on the price of a thinly traded security.

The correct answer was C)

Standard II(B), Market Manipulation, is not intended to prohibit transactions that are done in order to minimize income taxes or trading strategies that are not intended to distort prices or artificially inflate trading volume. Overstating earnings projections in order to increase the price of a stock is a direct violation.

3、All of the following are violations of Standard II(B), Market Manipulation, EXCEPT:

A)   exploiting differences in market inefficiencies.

B)   securing a controlling interest in an equity security in order to influence the price of a related derivative instrument.

C)   spreading false rumors about a firm to encourage trading by others.

D)   disseminating misleading information about the development of new products and technologies.

The correct answer was A)

Standard II(B), Market Manipulation, prohibits practices that distort prices or artificially inflate trading volumes with the intent to mislead market participants. The Standard is not intended to prohibit legitimate trading strategies that exploit differences in market inefficiencies.

4、Mark Williamson is “bearish” on ABC Manufacturing Company. Williamson is so convinced that ABC is overpriced, two weeks ago, he shorted 100,000 shares. Today, Williamson is “surfing” several popular investment bulletin boards on the internet and posting false derogatory comments about company management. According to Standard II(B), Market Manipulation, Williamson has engaged in:

A)   transaction-based manipulation, but not information-based manipulation.

B)   both transaction-based manipulation and information-based manipulation.

C)   information-based manipulation, but not transaction-based manipulation.

D)   neither transaction-based manipulation nor information-based manipulation.

The correct answer was C)    

Williamson is in violation of Standard II(B), Market Manipulation, by engaging in information-based manipulation. Information-based manipulation includes, but is not limited to, spreading false rumors about a firm in order to induce others to trade.

5、Steve Waters, a CFA Level I candidate, has decided to enter into a long position of Farmco stock. Since Farmco is thinly traded, Waters is concerned the order will overwhelm the liquidity of Farmco and the price will surge. Waters engages in a series of block trades in order to accomplish the purchase. According to Standard II(B), Market Manipulation, Waters has engaged in:

A)   neither transaction-based manipulation nor information-based manipulation.

B)   transaction-based manipulation, but not information-based manipulation.

C)   both transaction-based manipulation and information-based manipulation.

D)   information-based manipulation, but not transaction-based manipulation.

The correct answer was A)

Waters is not in violation of Standard II(B), Market Manipulation. Transaction-based manipulation includes, but is not limited to, transactions that artificially distort prices or volume. Information-based manipulation includes, but is not limited to, spreading false rumors about a firm in order to induce others to trade.