NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Ethical Issues
An investment adviser, Meera, learns from a friend at a listed company that a large unannounced contract will be declared next week. She advises her clients to buy the stock immediately. Which ethical and regulatory issue does this chiefly raise?
This raises the issue of using unpublished price sensitive information. Information about an undeclared contract that is not public and can move the share price cannot be used to trade or advise, because doing so breaches insider trading rules and the adviser's duty of integrity.
- AUse of unpublished price sensitive information, which is prohibitedCorrect
- BAcceptable use of market intelligence for client benefit
- CA permitted diversification strategy
- DA routine disclosure of conflict of interest
Explanation
Information about an unannounced contract that is not public and could affect the share price is unpublished price sensitive information. Acting or advising on it breaches insider trading norms and the adviser's duty of integrity, even when intended to benefit clients.
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