CFA Level 1 Question of the Week – Ethical and Professional Standards

mincemeat23 said:

Shouldn’t it be ‘On behalf of the bank, LAWSON will be providing…’?

You are right! We could also just delete “On behalf of the bank”. We try to change a few things here and there not to have the same material as in our question bank, but some mistakes might occur. Thank you for pointing out the issue and good luck with the exam!

The correct answer is B. 

Lawson is in violation of the standard relating to diligence and
reasonable basis. This is because the discussion between the two production
employees and any information shared is
not credible enough to base her investment decision on. Given that these
individuals lack seniority, it is less likely they have access to confidential information. Therefore basing
her financing and share disposal decisions on information, which is not
credible will result in a decision, which lacks a reasonable and adequate
basis. Lawson is not in violation of the standard concerning material nonpublic
information. The specificity of the information, the extent of its difference
from public information, its nature, and its reliability are key factors in
determining whether a particular piece of information is material; the less
reliable information is, the less likely it is to be material. As discussed
above, the fact that the production employees are discussing a strategic issue whose
likelihood of occurrence is uncertain makes the information nonmaterial.