Question #13 - Reading 42.5 Standards of Professional Conduct Guidance for Standards V

Reading: Reading 42.5 Standards of Professional Conduct Guidance for Standards V

PDF File: Reading 42.5 Standards of Professional Conduct Guidance for Standards V.pdf

Page: 9

Status: Unattempted

Correct Answer: A

Shared Context

- Womack's trading actions are a violation of: A) Standard IV(A)—Loyalty to Employer and Standard III(B)—Fair Dealing. B) Standard III(E)—Preservation of Confidentiality and Standard VI(B)—Priority of Transactions. C) Standard III(A)—Loyalty, Prudence, and Care and Standard VI(B)—Priority of Transactions.

Question

With regard to his coverage of HighLife stock, Singh:

Answer Choices:

A. did not violate the Standards for reasonable basis or research reports

B. violated the research reports Standard because he failed to differentiate between facts and opinions

C. violated the reasonable basis Standard by downgrading a stock because it missed one quarterly earnings estimate

Explanation

Singh reported a series of facts that led him to draw a conclusion, and identified the conclusion as his own. No nonpublic information was used in the HighLife analysis. While Singh did say that missing an earnings target would spur a downgrade, he made it clear that he had broader concerns about the firm's market share. Missing an earnings target would simply be confirmation of his concerns, and thus be the catalyst to his change of opinion.

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