Question #34
Reading: Reading 42.2 Standards of Professional Conduct Guidance for Standards II
PDF File: Reading 42.2 Standards of Professional Conduct Guidance for Standards II.pdf
Page: 19
Status: Incorrect
Correct Answer: A
Your Answer: C
Question
Paul Clark, CFA, has just learned from a financial analyst at Corvac Industries that orders for their core products are running ahead of last year's orders by 15%, information that has not been publicly disclosed by the company. Clark currently has a hold rating on Corvac based on his expectation of a 5% increase in revenues for the current year. Based on Standard II(
Answer Choices:
A. encourage Corvac to publicly release the order information and not act on that information until it is publicly disclosed
B. disclose the information publicly prior to making any changes in his recommendation
C. put Corvac on his firm’s restricted list and not make a recommendation until the increase in orders is publicly disclosed
Explanation
The Standard recommends that an analyst who possesses material non-public information
encourage the company to release the information publicly. The Standards prohibit Clark
from acting on the information until it is publicly disclosed. Since the information is only
known by Clark, putting it on a restricted list is not necessary. Public disclosure of material
non-public information by an analyst would likely be considered a violation of the
Standard.
(Module 42.3, LOS 42: II(A))