The CFA Institute recently made some interesting comments regarding the Mosaic Theory in practice, based on the current insider trading investigations taking place in the USA.
As you might know, Standard II reads that Members and Candidates who possess material nonpublic information that could affect the value of an investment must not act or cause others to act on the information.
The question then arises whether an analyst can "create" material non public information as a result of gathering & interpreting information from many sources. This is called the Mosaic Theory. The conclusion regarding the Mosaic Theory is that ''financial analysts are free to act on this collection, or mosaic, of information without risking violation."
Based on a short discussion of the current investigation the Institute concludes that "Analysts need not fear that informed and insightful analysis, founded on primary research, is suddenly inappropriate. Fashioning that mosaic, however, does not include painting by the numbers. We are confident that, as the investigation unfolds, honest research will prevail.
It was excellent and very informative. CFA Level 1, CFA Level 2, CFA Level 3 Institute at Kolkata
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