Notice of Change to Study Reference Materials

To All CMT Level 3 Candidates: The Ethics Committee of the CMT Association has noticed that a major change has taken place in the U.S. legal climate involving the definition of who qualifies to be an insider.  This change has occurred rather recently so many may be unaware of its impact. In a recent edition of the CMT Newsletter a question was revisited that caused some members to appropriately question the issue behind the study materials. Consequently, that sample question has been revised on the CMT Newsletter. For all those studying for the CMT 3 exam please take a moment to review this study question with the latest update to the explanation of its answer:

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Valerie Vlostok, CMT, is a technical analyst who publishes technical opinions for a sell-side research firm.  Her good friend George works as a mid-level manager for COS Incorporated, a large agricultural company. At lunch George explained to Valerie that they had to fill a very large order for their customer, Monsanto Inc (MON). George felt certain that these were unusually large shipments and that Monsanto got a good deal from them. He gave his opinion that this would greatly help Monsanto’s margins in the upcoming quarter. Valerie returned to her office and checked the chart of MON to see if it showed any technical strength. She found that there were a number of surprisingly strong indicators that implied a coming bullish trend for the stock.  She decided to publish a recommendation based solely on technical factors that MON was a near-term buy. Based on this information, which of the following statements is most accurate?
  1. Valerie committed no violation.
  2. Valerie violated Ethics Standard 1 regarding professional competence, integrity and judgment.
  3. Valerie violated Ethics Standard 2 making technical recommendations which were inaccurate or misleading.
  4. Valerie violated Ethics Standard 5 regarding inside information by speaking about this to George.

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  IMPORTANT UPDATE: Recent legislation in the U.S. has occurred within the past year that changes the interpretation of an insider. The correct answer is that this WOULD be a violation, making D the correct choice above.  Candidates should be aware that any future exam questions regarding insider trading should be answered with the strictest interpretation as new legislation does not allow for practical excuses in this matter. Candidates should also be reassured that when global conditions change that impact a question’s answer, this will always be taken into account during the grading procedures.