NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Ethical Issues
Mr. Iyer, an investment adviser, learns from a friend at a listed company that its quarterly results, not yet public, will be far above expectations. He advises his clients to buy the stock before the announcement. Which statement best describes his conduct?
His conduct is unethical and a violation because he acted on unpublished price sensitive information. Using or passing on such non-public information to influence trades amounts to insider trading, and neither avoiding personal trading nor matching the client's risk profile makes it permissible.
- AAcceptable, since he did not trade in his own account
- BAcceptable if he discloses the source to clients
- CUnethical and a violation, since it involves unpublished price sensitive informationCorrect
- DAcceptable if the clients' risk profile permits equity investment
Explanation
Unpublished price sensitive information may not be communicated or used to advise trades, regardless of whether the adviser trades personally. Disclosing the source or matching risk profile does not cure the breach. Advising on the basis of such information is insider trading and unethical.
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