CFA Standards of practice - Integrity of capital markets

Question 1

Explain how CFA Members and Candidates should deal with “Material non public information”

Answer 1

MaC who possess material nonpublic information that could affect the value of an investment must not act or cause others to act on the information

Question 2

What is “material” ? (from : Material non public information)

Answer 2

Information is material if its disclosure would probably have an impact on the price of a security or if reasonable investors would want to know the information before making an investment decision

Question 3

Give the 12 ways a MaC should compliance regarding “Material nonpublic information”

Answer 3

1. Achieve public dissemination
2. Adopt compliance procedure to prevent misuse of information
3. Adopt disclosure procedures to ensure that information is disseminated to the marketplace in an equitable manner
4. Issue press releases before analysts meeting
5. Create firewall elements to prevent communication within firm
6. Create a physical separation of departments
7. Prevent the personnel overlap
8. Implement a reporting system to approve communication between departments
9. Limit personal trading
10. Maintain written records of the communications
11. Create proprietary trading procedures
12. Communicate to all employees

Question 4

Explain how CFA Members and Candidates should deal with “Market manipulation”

Answer 4

MaC must not engage in practices that distort prices or artificially inflate trading volume with the intent to mislead market participants

Question 5

What does market manipulation include ?

Answer 5

1. The dissemination of false or misleading information
2. Transactions that that deceive or would be likely to mislead market participants by distorting the price-setting mechanism of financial instruments

Question 6

Explain what information manipulation means

Answer 6

It includes spreading false rumours to induce trading by others.

Question 7

Explain what Transaction manipulation means

Answer 7

It involves instances where the MaC knew or should have known that his actions could very well affect the pricing of a security. The intent of the action is critical to determine a violation