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.

ayaz_mahmud369

D) Advise client to call back in 24 hours.

Swanand

I suppose when you think about it A could be right. Because the recommendation hasnt actually been delivered yet it is still material information. I doubt you'd get a question like that on the exam though, as I don't think it states anywhere in the standards when you start to inform them of the change. When it has been delivered (24 hrs)? When they have all had time to act (probably 48 hrs)?

tarunajwani

Schweser or Stalla Question?

I bet Schweser, they suck the most.

I stick to EOC for Ethics.

firat

I don't know if you guys know but there is a Free Ethics Test from the CFAI available on their website...

it's about 50 questions similar to CFAI wording (they are not item sets unfortunately) but good practice nevetheless

- Guille

DSquaredSlim

AAARRRGHH!!! I guess I should review Ethics

- Guille

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.

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.

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

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.