A registered representative calls a client and tells him that he has just heard from a confidential source in ABC Inc. that ABC has just discovered a cure for cancer. He tells the client to buy ABC stock immediately. Such conduct by the registered representative is:

Question

Social Studies

Merlin

22 April, 17:05

A registered representative calls a client and tells him that he has just heard from a confidential source in ABC Inc. that ABC has just discovered a cure for cancer. He tells the client to buy ABC stock immediately. Such conduct by the registered representative is:

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Sammy Tyler · Answer 1

Answer: Possible violation of insider information rules or insider trading

Explanation: Insider trading simply buying or trading a public company's stock based on non-public information. In the scenario given above, the client was tipped by a sales representative via a confidential source which hadn't been made public or via legal communications sources from the company.

The prohibition also applies to those who aids and abets a company's insider information leakage as it is deemed illegal. By violating insider information, it gives unfair advantage to those who have access to such information enabling them make more profit.