Series 79 practice questionhardChinese Walls / Information Barriers
An investment bank is advising Company A on a hostile takeover bid for Company B. The firm's proprietary trading desk currently holds a significant position in Company B shares. The compliance department decides to bring the head trader 'over the wall.' Which of the following best describes the implications of this decision?
- AThe trading desk must immediately liquidate its entire position in Company B before receiving any information
- BThe trader becomes restricted and must follow compliance protocols for the MNPI✓ Correct answer
- CThe head trader may continue trading normally as long as trades are disclosed to the compliance department after execution
- DBringing a trader over the wall is prohibited under all circumstances by SEC regulations
Explanation
Why B — The trader becomes restricted and must follow compliance protocols for the MNPI
When an individual is brought 'over the wall,' they receive access to MNPI but become subject to strict trading restrictions and compliance protocols regarding the relevant securities. The individual cannot trade in the affected securities until the information becomes public or is no longer material. This is a controlled process managed by compliance, which includes documentation, acknowledgment by the individual, and monitoring. It is not prohibited but requires careful compliance oversight to prevent insider trading.
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