Ethics and Professionalism.

Explanation

Standard V (A) prohibits members who possess material nonpublic information related to the value of a security from trading in that security if such trading would breach a duty or if the information was misappropriated or relates to a tender offer.

Standard V (A) of the CFA® Level 1 curriculum deals with the "Prohibition against Use of Material Nonpublic Information." This standard is an essential aspect of ethical conduct for investment professionals and addresses the responsibilities and obligations associated with the use of material nonpublic information.

Material nonpublic information refers to any information that is not available to the general public and could potentially influence the price or value of a security or investment. It includes information such as financial results, mergers and acquisitions, regulatory decisions, key personnel changes, and other sensitive data that, if known, could impact investment decisions.

Standard V (A) establishes guidelines and expectations for CFA® charterholders and candidates regarding the use of material nonpublic information. The standard prohibits the use of such information to gain an unfair advantage over other market participants. It emphasizes the importance of fair and equitable treatment of all investors and maintaining the integrity of the financial markets.

The standard includes several key points and requirements:

1. Prohibition against Insider Trading: CFA® charterholders and candidates must not engage in insider trading, which involves trading or recommending securities based on material nonpublic information. Insider trading is illegal and undermines market fairness and investor confidence.

2. Duty to Maintain Confidentiality: Investment professionals have a duty to maintain the confidentiality of material nonpublic information. They must exercise caution and avoid disclosing or discussing such information with unauthorized individuals, including family members, friends, or colleagues who could potentially benefit from it.

3. Chinese Walls and Information Barriers: Firms should establish appropriate controls, such as Chinese walls or information barriers, to prevent the unauthorized flow of material nonpublic information within the organization. These measures help to segregate individuals or departments that have access to sensitive information from those engaged in investment decision-making.

4. Restrictions on Personal Trading: Investment professionals should adhere to firm-specific policies and procedures that restrict personal trading activities when in possession of material nonpublic information. These policies may require pre-clearance of trades or temporary trading restrictions until the information becomes public.

5. Educating and Supervising Employees: Firms are responsible for educating their employees about the prohibition against the use of material nonpublic information. They should also establish effective supervisory systems to ensure compliance with the standard.