Is it true ?

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vc

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would anyone like to tell me

If two guys don't have any fiduciary relationship , they will not be violated any abuse

material non-public information ?
 
This is not true.

Make sure that you have the most recent Standards of Practice handbook (ninth edition 2005) and look at the top of page 37 adn example 2 on the bottom of page 43.

This is a change from the past (the previous edition of the Standards).
 
I would say it is true except for the misappropriation thing. It's just that CFAI has ordained that 'trading on material non-public information' is always and everywhere a violation of CFA ethical standards. As I have pointed out in the past, this is the most ridiculous part of the ethical standards.

Among the reasons for this:

1) It is an analyst's job to be investigative and entrepeneurial not to disseminate information publicly.
2) US law is stricter about trading on inside information than any other law (as far as I know) but allows trading on material, non-public information in numerous circumstances (e.g., the "heard on the elevator" example).
3) There is considerable debate with all kinds of good reasons why even blatantly insider information ought to be legal to trade on. This position is held by Milton Friedman among other notables. Do the people on the ethics committee claim greater moral authority than Milton Friedman and, if so, why?
4) This policy is too strict for developed markets and does a deep disservice to underdeveloped markets. In the US, insider trading was not illegal and a normal part of equity trading into the 1960's. Does CFAI believe that they have more moral authority about what ought to happen in Chinese equity markets than the Chinese govt and, if so, why?
5) Material, non-public information is a necessary part of trading securities such as bank debt. A strict reading of CFAI's policy says a charterholder can't trade bank debt.
6) There are massive shades of gray in what is material and non-public. An analyst contemplating a trade with gray information can consult an attorney to determine whether the trade complies with local law. The attorney has access to well-developed case law and court determinations. An analyst determining whether he is violating CFAI policy has nothing. No precedent, no legal advisor, just an idiotic edict made by CFAI by their own admission because the previous policy was "too complicated".

I encourage everyone to comply with their local laws and answer the stupid questions on the exam correctly. I encourage everyone to try to get CFAI to abandon this shameful piece of idiocy. Just because some cabal in CFAI says it's true doesn't make it so.
 
Joey -

I think the question was asked interms of CFAI. He asked "is it true...will not be violated" and in terms of CFAI it is a violation, so the answer he is looking for is that it is not true, because it is a violation under CFAI rules.

I don't have an opinion on whether or not using material non-public info should be allowed, but the "make reasonable efforts to achieve public dissemination" is incredibly impractical and retarded.
 
The highest protection according to the CFAI code of ethics is awarded to the integrity of the markets, then the client, employer and self. A fiduciary relationship is only one where there one party has a greater amount of knowledge and/or trust someone else with their money, or allows someone to make investment choices for them, etc; there is a greater amount of trust in that relationship. EG, an investment advisor giving investment advice to someone who has limited investment knowledge.

An example of a non-fiduciary relationship existing is one where John Smith, CFA and Joan Brown, CFA, working for an investment bank. If John gives Joan information about a significant secondary bond offering under taken by ABC so that ABC can fund capital expenditures after a disappointing quarter in terms of earnings and cashflow (Pre-public dissemination of the information), then John has violated the code. If in addition Joan sells her holding based upon this information before dissemination Joan is also in violation.
 
Hey James that " highest protection according to the CFAI code of ethics is awarded to the integrity of the markets" is just rhetorical BS. There is nothing about this idiocy that protects anything except lazy and stupid people.

You're completely right Super I, I just really hate this nonsense and wish that CFAI members would get together and do something about it.



Edited 1 time(s). Last edit at Sunday, September 24, 2006 at 07:07PM by JoeyDVivre.
 
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