The firm must increase the level of review or restriction of proprietary trading activities during periods in which the firm has knowledge of information that is both material and nonpublic.

The firm must increase the level of review or restriction of proprietary trading activities during periods in which the firm has knowledge of information that is both material and nonpublic.

Bentley has identified two of Green’s analysts, neither of whom have non-compete contracts, who are preparing to leave Federal Securities and go into competition. The first employee, James Ybarra, CFA, has agreed to take a position with one of Federal’s direct competitors. Ybarra has contacted existing Federal clients using a client list he created with public records. None of the contacted clients have agreed to move their accounts as Ybarra has requested. The second employee, Martha Cliff, CFA, has registered the name Cliff Investment Consulting (CIC), which she plans to use for her independent consulting business. For the new business venture, Cliff has developed and professionally printed marketing literature that compares the new firm’s services to that of Federal Securities and highlights the significant cost savings that will be realized by switching to CIC. After she leaves Federal, Cliff plans to target many of the same prospects that Federal Securities is targeting, using an address list she purchased from a third-party vendor. Bentley decides to call a meeting with Green to discuss his findings.

After discussing the departing analysts. Green asks Bentley how to best handle the disclosure of the following items: (1) although not currently a board member. Green has served in the past on the board of directors of a company he researches and expects that he will do so again in the near future; and (2) Green recently inherited put options on a company for which he has an outstanding buy recommendation. Bentley is contemplating his response to Green.

According to Standard 11(A) Material Nonpublic Information, when Green contacted Volk, he:
A . violated CFA Institute Standards.
B . violated of CFA Institute Standards unless the contact was disclosed to his clients.
C . did not violate CFA Institute Standards since he was conducting a legitimate research activity.

View Answer

Answer: C

Explanation:

There is no evidence co suggest that the contact was inappropriate. Green is crying co gauge investor sentiment relative to technology stocks. While a fire wall within the firm would be advisable, since no company-specific information was exchanged, the contact was relatively harmless. Also, there is no violation of Standard 11(A) Material Nonpublic Information because there was no inside information discussed. (Study Session 1, LOS 2.a)