Question #39
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: 21
Status: Correct
Correct Answer: B
Question
A stockbroker who is a member of CFA Institute has a part-time housekeeper who also works for the CEO of Festival, Inc. One day the housekeeper mentions to the broker that she saw the CEO of Festival having a conversation at his home with John Tater, who is a nationally known corporate lawyer and consultant. The stockbroker is restricted from trading on this information:
Answer Choices:
A. for both of the reasons listed here
B. if the housekeeper says the meeting concerned a tender offer and the broker knows that it is non-public information
C. only if the broker knows that the meeting is non-public information
Explanation
Standard II(A), Material Nonpublic Information, states "a member cannot trade or cause
others to trade in a security while the member possesses material nonpublic information"
A tender offer would certainly be material nonpublic information. Knowing that the
meeting took place, and nothing else, does not restrict the broker. A reasonable investor
would need to know more to determine if the information was material.
(Module 42.3, LOS 42: II(A))