Q: Mimic Client Trade

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James, CFA, is a stock broker. James client base is comprised of small to meidum sized individual accounts. James notices that one client in particular, Chet Young, Ph.D., is particularly adept at picking undervalued stocks. James decides to watch Young's trades and mimic them in his own account. James:

A. is in violation of Standard VI(B) Prioirty of transactions
B. is in violation of Standard V(A) Diligence and Reasonable Basis
C. is not in violation of any standards
D. is in violation of Standard I(D) Misconduct because he has misappropriated confidential client information
























The answer is C, but I though it would be D. Are client trade info not confidential?
 
I did this question a while back and I thought the same thing. You got this from Schweser right? I agree with you, no one but my broker (which is an online cheap account) as well as the back office knows what trades I do. I don't think it's ethical and I don't know what I would do if I get this sort of question Saturday.
 
I similarly agree. I think that copying a clients trade patterns is a clear violation of privacy. I believe i've seen cfa questions that directly contradict what the schweser monkeys wrote on this one (don't get me wrong.. schweser is great.. just not on ethics).

Take this scenario... suppose you're the broker for warren buffet's personal account. Don't you think those trade patterns might be considered material information that the average investor would want to be aware of in their investment choices?
 
C. is not in violation of any standards

Thats called tailgating or coattail investing. The investor is not harmed by this. They are helped if anything.
 
i wish i were processing trades for carl icahn and warren buffet
the big bucks from insider information...
I'm sure is illegal if its not violation of a standard...
 
mcf Wrote:
-------------------------------------------------------
> I similarly agree. I think that copying a clients
> trade patterns is a clear violation of privacy. I
> believe i've seen cfa questions that directly
> contradict what the schweser monkeys wrote on this
> one (don't get me wrong.. schweser is great.. just
> not on ethics).
>
> Take this scenario... suppose you're the broker
> for warren buffet's personal account. Don't you
> think those trade patterns might be considered
> material information that the average investor
> would want to be aware of in their investment
> choices?


How is it a violation to invest in something that Warren Buffet is? True, when he buys a stake in a company, the price soars. But what are you suppose to do? When he decides to buy a stock restrict the whole world from buying it for x days after?

Frontrunning is illegal. Tailgating is not. The BO guys for Buffet are lucky!
 
B) Violation of adequate and reasonable basis. You are mimicking some trade where in you don't understand the underlying logic. So this is a clear violation !!!!! What's the answer ???
 
I don't care what the answer key says, without more information B looks right. Diligence and Reasonable Basis: "Have a reasonable and adequate basis, supported by appropriate research and investigation, for any investment analysis, recommendation, or action. Members and candidates can rely on third-party research but must make reasonable and diligent efforts to determine that such research is sound." That definitely does not appear to be diligent or reasonable research and investigation.
 
The question states that the advisor mimics the trade in his own account, no the clients.
 
i hate this one, it should be B but i guess the book says C, i recal this one

B b/c the broker holds the charter so should due more due diligence before making an investment -- BUT since it is his account, i guess he doesnt have to do "real research"


i will recall now: tailgating = okay
 
krisC Wrote:
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> B) Violation of adequate and reasonable basis. You
> are mimicking some trade where in you don't
> understand the underlying logic. So this is a
> clear violation !!!!! What's the answer ???


It's not B because you do not need to be diligent and have a reasonable basis for your own trades.
 
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