SIE practice questioneasyInsider Trading
A registered representative learns confidential information about a company’s upcoming merger through a client who works at the company. According to securities laws, what action is the representative prohibited from taking?
- AWaiting until the information is public before trading
- BReferring the information to his supervisor
- CTelling the client he cannot act on the information
- DBuying shares of the company before the news is public✓ Correct answer
Explanation
Why D — Buying shares of the company before the news is public
Insider trading laws prohibit anyone from trading securities based on material, non-public information. Buying shares on such information constitutes illegal insider trading. Referring the matter to a supervisor is the correct procedure. Advising the client not to act and waiting for public disclosure are also compliant actions.
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