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Dear all,

Can anyone help me with the following question about Code and ethics pls

Over the past 2 yrs, a Frm, manager of hedge fund, has been purchasing large quantity of a common stock, and at the same time shorting put option of the same stock. She did not notify her clients of the trades although they are aware of the fund general strategy to generate returns. Asking which of following statements is mostly correct. she

a) did not violate Code
b) violate by manipulate price of publicly traded securities
c) violate by fail to disclose to clients before trades occur
d) violate by fail to establish reasonable, adequate basis before making trades

I think b and c are correct.
But the correct answer is a. reason is she attempts to take advantage of an arbitrage opportunity that exists between that common stock and its put option. that s an investment strategy so not violate b and since her clients aware of it, she doesnt violate c

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关键词：quesion Help ESI elp FRM FRM 解答 前辈 Help quesion

I agree with the answer.

magicrex 发表于 2010-4-6 16:46
I agree with the answer.

but why a is correct? how did u say she s thinking of arbitrage, but not like the example in ethical (she attempts to cover up her great loss by breaking the hedge to try to gain a much greater profit but with a greater risk )

Also confused about the official answer. Since shorting put option and long the stock will have the same risk exposure and it is not a hedge. If the price of the common stock goes down, then both strategies will bring big loss to the fund. And the only way the fund can make a fortune is to manipulate the stock price. Through heavy purchasing, it can keep the stock price high enough to make the put option useless.

up up
wish to know your guys' opnions...