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NISM Certifications · NISM-Series-XV: Research Analyst · Legal and Regulatory Environment (NISM XV)

Research analyst Meera learns that her firm's upcoming report on a listed company, not yet public, contains a rating upgrade likely to move the share price. Her friend asks her to share the rating so he can buy shares beforehand. Which statement is correct?

Meera must not share the rating. It is unpublished price-sensitive information, and passing it on for trading breaches the research analyst code of conduct and may attract insider trading provisions. Whether the friend is a client, pays a fee or buys a small quantity makes no difference.

  1. ASharing the rating would breach the code of conduct and, since the information is unpublished price-sensitive, may attract insider trading provisionsCorrect
  2. BSharing is fine if the friend is not a client
  3. CSharing is fine if the friend pays Meera a fee afterwards
  4. DSharing is fine provided the friend buys fewer than 1,000 shares

Explanation

An unpublished rating change that can materially affect price is confidential. Passing it on for trading breaches the research analyst code of conduct and may violate the insider trading regulations. Client status, a fee or a small quantity does not remove the breach.

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