FRM Part I · FRM Exam Part I · GARP Code of Conduct
An FRM charterholder working at an asset manager learns that a close friend at a listed company is about to announce a major loss. The information is not public. A colleague suggests using it to adjust the fund's risk hedges ahead of the announcement. Which response is consistent with the GARP Code of Conduct?
The member should refrain from acting on or distributing the material nonpublic information. The GARP Code forbids using such information for advantage, regardless of motive such as hedging or how it was obtained. Any compliance consultation must occur before action, not after trading.
- AUse the information only for hedging, since no speculative profit is sought
- BUse the information if the friend gave it voluntarily
- CShare it with the compliance team's approval only after trading on it
- DRefrain from acting on or distributing the material nonpublic informationCorrect
Explanation
The Code prohibits using or sharing material nonpublic information to gain an advantage. A hedging purpose or voluntary disclosure does not change its nature. The member must not act on or pass it on, and should follow compliance procedures. Seeking approval after trading is too late.
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