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Ethical And Professional Standards MCQ - Ethical And Professional Standards Section 1

76 Kayla Donovan, CFA, works as a portfolio manager for MacBrady Securities & Co. Some of her wealthy and large clients hold long positions on Swift Delivery, which is a courier service. After analyzing her own company‟s research reports and information available on various internet sites about Swift, as well as Swift‟s company website she concludes that the stock is expected to rise sharply on the back of strong quarter-end earnings about to be released in an earnings report in a few days. She informs all MacBrady‟s clients since some of them will be at a distinct advantage once the quarter-end earnings are reported. Donovan also runs a popular blog as an independent analyst for which she has approval from her employer, where she mentions her predictions about various stocks including observations about Swift‟s stock. She discloses to her clients about her blog which they regularly visit. Has Donovan violated any CFA Institute Standards of Professional Conduct?

Kayla Donovan has not violated any Standard. Donovan has not caused the price of Swift to move up she has only given her opinion based on research. Further, she informed MacBrady’s clients prior to her internet broadcast and has approval from her employer to run her blog.

77 Roza Hernandez is a trust officer for Rize Trust Co. Hernandez uses Ricardo Drez, a broker, for trust account brokerage transactions. He gives Hernandez a lower price for her personal purchases than Hernandez‟s trust accounts. Hernandez is most likely violating the Standard related to:

Hernandez is violating her duty of loyalty to her trust accounts by using Drez, because he gives her favorable terms for her personal account.

78 Robert Blake is on the board of directors of Rice Industries and receives free tickets at the end of each quarter for his entire family to travel to any city of their choice in Europe for his services to the board. Blake does not disclose this information to his employer since it is not a monetary compensation. Has Blake violated any CFA Institute Standards of Professional Conduct?

Blake has violated Standard IV(B) Additional Compensation Arrangements by failing to disclose to his employer benefits received in exchange for his services on the board.

79 A group of CFA charterholders under the name Research CFA, present online research on several popular stocks. Barry Marlow, a candidate in the CFA program, is an analyst at Drew Hedge Fund. He is under pressure by his firm executives to present his research report and recommendations on certain stocks. Marlow reads the research report by Research CFA and uses the material in his report discussed in the online research. The least likely violation under the CFA Institute Standards of Professional Conduct is:

Research CFA has violated Standard VII(B) Reference to CFA Institute, the CFA Designation, and the CFA Program by using CFA designation inappropriately. Marlow violated Standard V(A) Diligence and a reasonable basis.

80 Sara Petrowski, a CFA candidate, works as an analyst at Topline Brokers. She reads in the Financial Times a study on the financial markets issued by Ace Research. She uses material from the study in her research report and gives recommendations to her clients. Petrowski does not cite the newspaper as a source since it is merely a conduit of the original information. Has Petrowski violated the CFA Institute Standards of Professional Conduct?

Petrowski has violated Standard I(C). She should get the complete study from its original author Ace Research review it and acknowledge it in her report instead of simply plagiarizing the report.

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Misrepresentation

Investment professionals must not knowingly make false or misleading statements about analysis, recommendations, qualifications, services, or professional activities.

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Question:

Which of the following statements is most accurate according to the Standards of Practice Handbook? Members and Candidates:

A. who possess nonmaterial nonpublic information that could affect the value of an investment must not act or cause others to act on the information.
B. who possess material nonpublic information that could affect the value of an investment must not act or cause others to act on the information.
C. who possess nonmaterial public information that could affect the value of an investment must not act or cause others to act on the information.

Correct answer: B

Explanation:

Refer to Standard II(A) Material Nonpublic Information.

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