Question #11 - Reading 43 Application of the Code and Standards Level II

Reading: Reading 43 Application of the Code and Standards Level II

PDF File: Reading 43 Application of the Code and Standards Level II.pdf

Page: 8

Status: Incorrect

Correct Answer: B

Your Answer: C

Shared Context

- Which of the following statements about O'Brien's use of convertible bonds is CORRECT? A) O’Brien’s lack of expertise in equity analysis, despite usage of the CFA mark, represents a violation of Standard VII(A): Conduct as Members and Candidates in the CFA Program. B) The use of convertible bonds in O’Brien’s high-yield fund violates Standard V(A): Diligence and Reasonable Basis. C) Unless O’Brien makes arrangements for someone else to vote the proxies, he is in violation of Standard III(A): Loyalty, Prudence, and Care.

Question

With regard to the Villa Real investment, O'Brien's actions:

Answer Choices:

A. violate neither the reasonable-basis Standard nor the priority-of-transactions Standard

B. violate the reasonable-basis Standard and the fiduciary-duties Standard

C. do not violate the fiduciary-duties Standard but do violate the priority-of- transactions Standard

Explanation

O'Brien is allowed to invest in securities he covers according to company policy. Since he traded for the firm's accounts first and his personal account second, O'Brien did not violate a fiduciary duty or the priority-of-transactions Standard. Since O'Brien acted on information he obtained through a weather forecast, he did not use any material nonpublic information. His sell decision was based on his knowledge of the company and its circumstances, and, as such, is not a violation of the reasonable basis standard.

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