Series 79 practice questionmediumChinese Walls / Information Barriers
An investment bank's control room adds a company to its restricted list after learning of a potential merger. Which of the following best describes the impact on the firm's trading and research departments?
- AThe research department may continue to issue reports but must not discuss the merger.
- BBoth trading and research must immediately suspend all activity involving the issuer's securities until further notice.✓ Correct answer
- CThe trading desk can continue proprietary trading but must halt client trades in the issuer's securities.
- DOnly the control room staff are prohibited from discussing the issuer with other departments.
Explanation
Why B — Both trading and research must immediately suspend all activity involving the issuer's securities until further notice.
When a company is placed on the restricted list, both trading and research must suspend all activity in the issuer's securities to prevent misuse of material nonpublic information. The trap is assuming that limited activity is allowed or that only one department is impacted.
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