{"id":842,"date":"2019-07-12T17:36:00","date_gmt":"2019-07-12T17:36:00","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=842"},"modified":"2025-12-15T15:05:02","modified_gmt":"2025-12-15T15:05:02","slug":"standard-2a-material-non-public-information","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/ethical-and-professional-standards\/standard-2a-material-non-public-information\/","title":{"rendered":"Standard II(A) \u2013 Material Non-Public Information"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"VideoObject\",\n  \"name\": \"Standard II \u2013 Integrity of Capital Markets (2025 Level I CFA\u00ae Exam \u2013 Ethics \u2013 Module 3)\",\n  \"description\": \"This video lesson covers CFA Level I Ethics \u2013 Standard II on Integrity of Capital Markets. It explains material nonpublic information, Mosaic Theory, market manipulation, and real-world applications. Examples clarify ethical violations, proper research practices, and the importance of transparency, fair dissemination, and compliance in financial decision-making.\",\n  \"uploadDate\": \"2022-08-23T00:00:00+00:00\",\n  \"thumbnailUrl\": \"https:\/\/img.youtube.com\/vi\/6SD8qMigWp8\/maxresdefault.jpg\",\n  \"contentUrl\": \"https:\/\/www.youtube.com\/watch?v=6SD8qMigWp8\",\n  \"embedUrl\": \"https:\/\/www.youtube.com\/embed\/6SD8qMigWp8\",\n  \"duration\": \"PT22M28S\"\n}\n<\/script>\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"What action complies with CFA Standard II(A) \u2013 Material Non-Public Information?\",\n    \"text\": \"Muriel Gagnon, a CFA member, resides in and manages portfolios in a country where securities laws do not prohibit the sharing of material non-public information. Gagnon has an opportunity to benefit her clients by sharing quarterly financial results for Cote Industries two days before they become public. To comply with Standard II(A) \u2013 Material Non-Public Information, Gagnon has the following option:\\n\\nI. Immediately make investment recommendations for each client based upon Cote Industries\u2019 financial results.\\n\\nII. Ask an analyst from another firm for advice after discussing the specific investment recommendations that she could share with clients.\\n\\nIII. Make securities trades on behalf of her clients without discussing specifics of Cote Industries\u2019 quarterly results.\\n\\nA. I and III only\\nB. II only\\nC. None of the above\",\n    \"answerCount\": 1,\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"The correct answer is C. Under Standard II(A) \u2013 Material Non-Public Information, Gagnon must not act on or share material non-public information. She must wait until Cote Industries\u2019 earnings are publicly released before making recommendations, trades, or discussing the information with anyone. Therefore, none of the listed actions are permitted.\"\n    }\n  }\n}\n<\/script>\n\n\n\n<iframe loading=\"lazy\" width=\"560\" height=\"315\" src=\"https:\/\/www.youtube.com\/embed\/6SD8qMigWp8?si=JiV7M0Iyx5nQky_h\" title=\"YouTube video player\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe>\n\n\n<h2>\u00a0<\/h2>\n<h2>II. Integrity of Capital Markets<\/h2>\n<p>Standard II discusses sharing of material information qualified as non-public, as well as the intent to manipulate markets. It prohibits CFA members from acting in a way to distort market value through manipulation.<\/p>\n<h2>Standard II(A) \u2013 Material Non-Public Information<\/h2>\n<p>Standard II(A) \u2013 Material Non-Public Information indicated that members who possess material, non-public information could unduly impact the markets.\u00a0 Therefore, they must not act or cause others to act on this information.<\/p>\n<h2>Compliance<\/h2>\n<p>It is expected that investment professionals will make recommendations based on publicly available information, incorporating necessary due diligence concerning market analysis. Trading with the use of material, non-public information is viewed as market manipulation in that it skews market value via manipulation.<\/p>\n<p>The definition of material, non-public information is any knowledge that is not readily available and will clearly impact market value. A non-exhaustive listing of material information includes news of mergers and acquisitions, patent approvals, change in leadership, significant legal action, bankruptcy, or government reports of economic trends.<\/p>\n<p>In addition to specific information used, the source of said information also has an impact on materiality. For example, an inside source close to the information is said to have a greater sense of veracity than a corporate competitor. Likewise, a member of any government agency who\u2019s in the position to approve a new product or patent would be considered material.<\/p>\n<p>Related to the non-public aspect of information, disseminating data must be publicly available via the Internet or another easy-to-reach source. Noteworthy is the notion that a partial distribution of information to a limited group of financial analysts does not constitute public information. For example, if an analyst is on a conference call with a client in which non-public, material information may be disclosed; and the analyst fails to secure the area in which information is being exchanged (i.e., other employees may pass through the conference room while a call is in progress), then the analyst can be considered in violation of Standard II(A) \u2013 Material Non-Public Information.<\/p>\n<p>To protect savvy financial analysts, Standard II(A) \u2013 Material Non-Public Information clearly states that conclusions which overlap with material, non-public information may be drawn from extensive research of publicly available data.\u00a0 For example, press releases or government filings are just two types of information that an analyst may utilize as research. Therefore, should these experts draw correct conclusions that mirror material, non-public information, it should not be considered misconduct.<\/p>\n<p>With regard to the use of outside investment experts, it is permissible for CFA members to pay for knowledge related to specific industries.\u00a0 However, it is incumbent upon the member to ensure that the data received is not material, non-public information before sharing it with clients.<\/p>\n<p>To achieve compliance with Standard II(A) \u2013 Material Non-Public Information, the following are recommended steps to be followed by an investment firm:<\/p>\n<ul>\n<li>Adopt compliance procedures to prevent misuse of material, non-public information.<\/li>\n<li>Adopt disclosure procedures to ensure that material information is thoroughly distributed to the marketplace.<\/li>\n<li>Issue press releases before analyst meetings to prevent disclosure of material, non-public information.<\/li>\n<li>Enact a \u201cfirewall\u201d to restrict the flow of proprietary information within a firm. Additionally, monitor trading activity on any stocks for which a firm may hold material, non-public information.<\/li>\n<li>Prevent personnel from interacting with more than one departmental area within a firm. For example, investment banking and corporate finance should maintain a self-contained body of employees.<\/li>\n<li>Maintain detailed records of communication between various departments within a firm and records with outside agencies.<\/li>\n<\/ul>\n<h2>Violation<\/h2>\n<p>Any trading based on material non-public information is considered a violation of Standard II(A) \u2013 Material Non-Public Information. Although the burden of proof lies with a disciplinary board concerning materiality, non-public, and source, suspicion of violation is a serious matter. Therefore, strict adherence to the highest level of Standard II(A) \u2013 Material Non-Public Information should be a major concern for all investment firms.<\/p>\n<blockquote>\n<h2>Question<\/h2>\n<p>Muriel Gagnon, a CFA member, resides in and manages portfolios in a country where securities laws do not prohibit the sharing of material non-public information. Gagnon has an opportunity to benefit her clients by sharing quarterly financial results for Cote Industries two days before they become public. To comply with Standard II(A) \u2013 Material Non-Public Information, Gagnon has the following option:<\/p>\n<p>I. Immediately make investment recommendations for each client based upon Cote Industries\u2019 financial results.<\/p>\n<p>II. Ask an analyst from another firm for advice after discussing the specific investment recommendations that she could share with clients.<\/p>\n<p>III. Make securities trades on behalf of her clients without discussing specifics of Cote Industries&#8217; quarterly results.<\/p>\n<ol style=\"list-style-type: upper-alpha;\">\n<li data-tadv-p=\"keep\">I and III, only<\/li>\n<li data-tadv-p=\"keep\">II only<\/li>\n<li data-tadv-p=\"keep\">None of the above<\/li>\n<\/ol>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is C.<\/p>\n<p>Muriel Gagnon must wait for Cote Industries&#8217; quarterly financial results to become public before she can discuss this material, non-public information with anyone. Therefore, none of the options provided would be appropriate.<\/p>\n<\/blockquote>","protected":false},"excerpt":{"rendered":"<p>\u00a0 II. Integrity of Capital Markets Standard II discusses sharing of material information qualified as non-public, as well as the intent to manipulate markets. It prohibits CFA members from acting in a way to distort market value through manipulation. Standard&#8230;<\/p>\n","protected":false},"author":18,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[3],"tags":[],"class_list":["post-842","post","type-post","status-publish","format-standard","hentry","category-ethical-and-professional-standards","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Standard II(A) \u2013 Material Non-Public Info | CFA Level 1<\/title>\n<meta name=\"description\" content=\"Understand CFA guidelines on handling material non-public information and its impact on market integrity and ethical investing.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" 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