NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Ethical Issues
Ms. Kavita Rao, an investment adviser, receives a non-public tip from a friend in a listed company that its quarterly results will be far better than expected. She considers buying shares for herself and advising clients to buy. Which statement reflects the correct ethical and legal position?
She should not trade or advise anyone on the basis of the non-public tip, because it is unpublished price-sensitive information and acting on it would be insider trading. Small trade size, disclosing the source, or limiting it to personal trades does not make it acceptable.
- AShe may buy for herself but not for clients, since personal trades are exempt
- BShe may advise clients to buy if she discloses the source of the tip to them
- CShe may act if the trades are small in value
- DShe should not trade or advise on the basis of the unpublished price-sensitive information, as this would amount to insider tradingCorrect
Explanation
Unpublished price-sensitive information must not be used to trade or to advise others to trade, whether for oneself or for clients. Neither small trade size nor disclosure of the tip's source cures the violation. Personal trades are not exempt either.
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