Q. Kazuya Kato, CFA, is a widely followed economist at a global investment bank. When Kato opines on economic trends, markets react by moving stock valuations considerably. When Kato receives information of a temporary oversupply of rare earth metals, he issues a forecast that price trends for rare earth metals will be down significantly on a long-term basis. Kato also secretly sells his report to a widely followed Internet site. Prior to issuing this forecast, Kato emailed all portfolio managers at his bank with a copy of his report indicating that his opinion would be reversed shortly so there will be trading opportunities. Kato least likely violated which of the following CFA Institute Code of Ethics and Standards of Professional Conduct?
- Market Manipulation.
- Priority of Transactions.
- Additional Compensation Arrangements.
B is correct because Kato exaggerated the potential for negative price movement with rare earth metals and violated Standard II(B)–Market Manipulation by aiming to profit on the volatility created by his actions. Standard II(B) requires that members and candidates uphold market integrity by prohibiting market manipulation. Market manipulation includes the dissemination of false or misleading information and transactions that deceive or would be likely to mislead market participants by distorting the price-setting mechanism of financial instruments. Standard IV(B)–Additional Compensation Arrangements was violated when he sold his report to the internet site. Standard VI(B)–Priority of Transactions has not been violated as it relates to investment transactions for clients and employers having priority over Member or Candidate transactions.
