Chartered F***in’ Analyst on Material Non-Public Information

by Johnny Debacle

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Material Non-Public Information Sample Question

Couric Noriega, CFA, is a citizen of Emerging Market Country (EMC) with no securities laws which govern the use of insider information. Ms. Noriega has clients in both Emerging Market Country and Neighboring Market Country, the latter of which has liberal securities laws with respect to the use of material non-public information. Should Couric Noriega come into the possession of material non-public information, she should:

A) Inform all her clients to assure she maintains the standard of Fair Dealing and then treat them all to a gratis meal from the Hamburguesa stand.
B) Trade on her personal account to lock down some sweet gains, and then inform all her clients of the information and guarantee them a rate of return of “Really High.” The Priority of Transactions states that a CFA holder should always put their own gains before their clients’ gains, and their clients’ gains before the law.
C) All of the above.
D) Only B.

Answer: D. While on past tests the appropriate answer would have B, and D would have made no sense or been at best redundant, the CFA institute has changed the bylaws so that when answering a question with two equally right answers, one of the two equally right answers will be arbitrarily chosen as the “correct answer.” In this case, it should have been apparent that it was D.

A is a misleading correct answer because while Couric Noriega upholds the correct standard of Fair Dealing, the distribution of hamburguesas could be seen as being used to unduly influence her clients and must be disclosed in writing to her employer, her employer’s employer and any relevenant regulatory bodies.

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  1. Bond investor
    September 18th, 2006 | 3:07 pm

    Johnny, your CFA sample question is entertaining! However, at risk of being a serious-minded stick-in-the-mud, since Ms. Noriega is a CFA charterholder, doesn’t she have a built-in restriction against using material non-public information by virtue of CFA rules? Therefore A-D are all inappropriate answers.

  2. September 18th, 2006 | 3:42 pm

    This would have been true under the old CFA guidelines. These were incorrect and have been revised to be more clear.