Series 63 practice questionhardProhibited Practices — Scenario
An agent learns that a publicly traded company is about to announce a major merger. Before the announcement, the agent purchases shares of the company in several customer accounts and in his own personal account. Which prohibited practices has the agent committed?
- AOnly churning
- BOnly commingling of funds
- COnly an unsuitable recommendation
- DUnauthorized transactions and trading on material nonpublic information✓ Correct answer
Explanation
Why D — Unauthorized transactions and trading on material nonpublic information
The agent has committed multiple violations. Trading on material nonpublic information (insider trading) is prohibited under both federal and state securities laws. Additionally, purchasing securities in customer accounts based on inside information without customer authorization constitutes unauthorized transactions. Under NASAA model rules and USA Section 502, both practices are dishonest and unethical.
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