Question of the Week

Helen Carter, CFA, is a portfolio manager working for a large multi-service financial services firm. The investment banking division of her firm was recently hired by Mega Corp. in order to assess the feasibility of conducting a large share buy-back program. Which of the following actions should be taken in order not to violate the AIMR Standards of Professional Conduct?

A) Simply impose a Fire Wall between these two departments.
B) Helen should immediately cease trading in any of Mega Corp.'s securities.
C) Helen, along with all the other investment managers, must sign a confidentiality agreement not to release any information that they may obtain through the investment banking division.
D) The investment banking division should turn down offering their services to Mega Corp.

Answer:

The correct answer is: a)

It is very important for information not to flow outside the boundries of the investment banking division. Most information found in this department is material and nonpublic. Therefore, an effective Fire Wall must be erected around this department. If in fact, Helen did cease trading in Mega Corp., then she may breach her fiduciary duty to her own clients either by not selling Mega shares when she should of, or not buying Mega shares when she should of.

2005 CFA Level 1 LOS: 1.2-1.3.a - 1.3.b