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CFA Level I · CFA Level I Exam · Guidance for Standard II: Integrity of Capital Markets

According to the guidance on Standard II(A), the most likely long-term consequence of trading on inside information is that:

Investors are likely to avoid capital markets because they see them as rigged in favor of knowledgeable insiders. Although inside trading may bring short-term profits, the guidance says it harms individuals and the profession and makes capital allocation less efficient.

  1. Amarkets become more efficient as insiders' information is reflected in prices faster.
  2. Binvestors avoid capital markets because they are perceived to be rigged in favor of insiders.Correct
  3. Cshort-term profits accrue to the profession as a whole and to individuals.

Explanation

The guidance says such trading may bring short-term profits but, over the long run, individuals and the profession suffer. Investors avoid markets seen as rigged, making capital allocation less efficient.

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