CMFAS RES 1A Ethics, Codes & Standards of Professional Conduct question: trades on material non-public information about a listed company

CMFAS RES 1AEthics, Codes & Standards of Professional Conduct

A representative trades on material non-public information about a listed company. This conduct is best described as:

A A statutory offence (insider trading) under the SFA, which is also an ethical and code breach
B Only an internal code breach with no legal consequence
C Purely an ethical lapse with no rule implications
D A best-execution matter

Show the answer and explanation

Answer: A. A statutory offence (insider trading) under the SFA, which is also an ethical and code breach

Insider trading is a market-misconduct offence under Part XII of the SFA (section 216 defines when information would have a material effect on price; the prohibitions apply to connected and other persons in possession of the information). It is a statutory breach carrying criminal and civil-penalty consequences, and simultaneously breaches ethical standards and the firm's code. Profit is not an element: trading on material non-public information is insider trading even if the trade loses money.

Common mistake

Do not downgrade insider trading to a mere code or ethical issue, and do not assume a losing trade escapes it.

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