Standard II(A) Flashcards
what is standard II(A)
Integrity of capital markets – Material nonpublic information
Explain standard II(A)
Number to possess material nonpublic info that could affect value of investment must not act or cause others to act on info
what is material information
Disclosure impact on security price or significant for investment decisions
examples of material information
Earnings, M&A, new licenses, innovative products
what constitutes non-public information
Information on public until disseminated into general market place
Members can use in Sutter info provided legitimately for due diligence per business agreements
What is mosaic theory
Gathering in interpreting information from various sources allowing significant conclusions derived from Analysis of public and non-material nonpublic information without violating standards
Relies on free flow of information
About mosaic theory
Enhances market efficiency, must save a document always research
Analyst research report should be made public at time it is distributed to clients but not mandatory
using industry experts
Allowed to provide compensation to external experts for insight without violation
Signed agreement regarding disclosure of material nonpublic information
Recommended procedures
Achieve public dissemination,
adopt compliance procedures,
adopt disclosure procedures,
issue press releases,
firewall elements,
appropriate interdepartmental communications,
physical separation of departments,
prevention of personnel overlap,
reporting system,
personal training limitations,
record maintenance,
proprietary trading procedures,
communication to all employees
what are firewall elements
Control of communications managed through clearance area
Review of employee trading
Document procedures to limit information flow between departments
What should the reporting system be
Determine whether info is material, info is sufficiently public to be used as a basis for investment decisions, sharing information is necessary, how much information should be shared
what is the recommended proprietary trading procedure
blanket prohibition on all proprietary activity is NOT apporpriate
stronger case for prohibition trading in risk-arbitrage
