Code of conduct

[Hend Abuenein]

Hi,

I have issues with the code of conduct. I find many concepts elusive and stretchable as to what is right and what is wrong.

Please consider this question for example (SchweserPro) :
The Investment Banking Department of MLB&J often receives material nonpublic information that could have considerable value to MLB&J's brokerage clients. To comply with the GARP Code of Conduct, MLB&J should most appropriately:

I answered :
Contact the firms involved and request that they make the information public before allowing clients to trade these securities.

Turns out correct answer is :

Restrict proprietary trading in the securities of companies about which the Investment Banking Department has access to material nonpublic information.

Solution refers to Standard 1.3, GARP : members must take reasonable precautions to ensure that Member's services are not used for improper, fraudulent or illegal purposes.

I thought of the matter as a question of ethics and thought it ethical to ask that information be made public before using it. Answer took it as question of professionalism. But why would proprietary trading in these securities based on private/non-public information be considered of improper, fraudulent or illegal purposes?! Is there a law against it that I don't know about?
But it says "purposes" not means. The purpose of dealing with these securities was considered by solution as improper...


This is just an example. I don't seem to get not one single question right when it has to do with code of conduct because of subjective judgement on phrases like : "inappropriate purposes" and "ethical responsibilities"...etc

Is there some way you can help me think about this...please and thank you

 

[David Harper CFA FRM]

Hi Hend,

(can i ask out of curiosity, doesn't Schweser have a means for you to follow-up/query?)

If you were studying for CFA, the phrase "material nonpublic" information would instantly (and easily) associate insider trading, it's a glaring red flag phrase in the CFA; e.g., although in a different context, the Raj Rajaratnam verdict illustrates the illegal version. I don't quite know what you mean by the purposes vs means distinction ... i hesitate to engage in what may be a re-purposed CFA question.

Although, my initial read is that the answer fits, as the GARP standard implies an onus on the firm's own procedures (i.e., what it can control). Further, in practice, an i-banker can't ask the client to make the inside info public to permit the firm's trading (that would be the cart leading the horse a bit). Unrealistic, from my experience.

Thanks, David

 

[Hend Abuenein]

Hi David,
Thank you for your reply about nonpublic information.

Frankly, I haven't sought Schweser's help in anything since I ordered their package. NOt because I don't need it, but because I like it here, and I like the elaborate way you explain things. You always something I didn't ask for that tuns out to be just as important to know.

But if it bothers you at all I'll stop referring to you for additional explanation on their questions.

I appreciate your tolerance.

 

[David Harper CFA FRM]

Hend, thanks but sincerely I was just asking out of curiosity ... you don't overload me, so now worries ... I am happy you like it here although sometimes I am less confident w.r.t. other provider's questions .... but i was sincerely merely curious how they handle follow-ups. Thanks, David