Analyst Ethical Dilemma and Capital Markets Integrity

Very Hard Ethical Decision-making Integrity Of Capital Markets

During a recent equity research conference, a senior analyst at a large investment firm overheard a conversation between two portfolio managers discussing a particular stock recommendation they planned to make public shortly. The analyst is aware of nonpublic, negative information related to the same company that could materially affect its stock price, but is also bound by confidentiality agreements prohibiting him from sharing that information. The analyst faces the dilemma of whether to warn the portfolio managers of the negative information.

Which of the following actions would most appropriately address the situation in compliance with the CFA Institute's Code of Ethics and Standards of Professional Conduct regarding the integrity of capital markets?

The analyst should directly inform the portfolio managers about the nonpublic negative information to prevent potential market harm.

The analyst should maintain confidentiality and refrain from sharing the information, while ensuring he does not act on the inside information himself.

The analyst should report the situation to compliance but do nothing else.

Hint

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