IAI Actuarial Core Principles · Business Finance · Ethical responsibilities of owners and managers
A listed company's finance director learns that next week's results will be far above market expectations. Which action best reflects her ethical responsibility as a director?
She should keep the information confidential and not deal in the company's shares until it is announced publicly. Unpublished price-sensitive information must not be used for personal gain or passed to others, whether she trades directly, through relatives, or tips off an analyst.
- ABuy shares in her own name before the announcement, since she is acting on the company's own information
- BAsk a relative to buy shares so that the trade is not in her name
- CTell a friendly analyst privately so that the market is not surprised
- DKeep the information confidential and refrain from dealing until it is publicly announcedCorrect
- Sell her existing shares so that she avoids a conflict of interest
Explanation
Results not yet public are unpublished price-sensitive information. A director must keep it confidential and must not deal on it, directly or through others. Passing it to an analyst or a relative is also misuse, and selling shares is still dealing on the information.
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