NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Ethical Issues
Adviser Meera Iyer learns from a client's casual remark that the client's relative works at a listed company and has shared unpublished price sensitive information about an upcoming merger. The client asks Meera to suggest buying that stock. What should Meera do?
Meera should decline to act on the information, avoid advising trades based on it, and escalate to compliance. Unpublished price sensitive information cannot be used or passed on without breaching insider trading rules and the adviser's duty of integrity, even when a client supplies it.
- ARecommend the stock since the client supplied the information
- BRecommend the stock but in small quantity
- CDecline to act on the information and not advise trades based on it, escalating to complianceCorrect
- DShare the information with other clients so none are disadvantaged
Explanation
Acting on or spreading unpublished price sensitive information breaches insider trading norms and ethical duties of integrity. Sharing it with other clients would also be wrong. The correct course is to refuse and inform compliance.
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