Question #58
Reading: Reading 42.3 Standards of Professional Conduct Guidance for Standards III
PDF File: Reading 42.3 Standards of Professional Conduct Guidance for Standards III.pdf
Page: 25
Status: Incorrect
Correct Answer: B
Your Answer: C
Part of Context Group: Q58-60
First in Group
Shared Context
Question
After changing her recommendation on Aggregate, Sanders:
Answer Choices:
A. violated Standard VI(B): Priority of Transactions by trading Aggregate from her own account
B. violated Standard II(A): Material Nonpublic Information by taking investment action based on information not accessible to the public
C. did not violate Standard II(A): Material Nonpublic Information because the information was disclosed to a select group of analysts
Explanation
The way in which Aggregate handled the conference call was an instance of selective
dissemination, Members and Candidates must be aware that disclosure to selected
analysts is not necessarily public disclosure. Thus, until the material information is made
public, Sanders cannot trade or cause others to trade. Once the information is made
public, Sanders must disseminate the information to her clients first, and give them
adequate time to act on the recommendation before trading for her own account. In the
absence of knowledge of any company policy with stricter requirements, 3 hours is
probably sufficient, and we cannot assume she violated Standard VI(B). Standard III(B)
does not require equal dissemination of information but rather fair dissemination.
Nothing in the question indicated that Sanders disseminated the information unfairly.