You are employed as an agent with CanDo Broker-Dealers. Your brother is software engineer with VideoMagic. When you were talking to him on the phone the other day, he told you that he overheard a conversation by some of the firm's executives that indicated that VideoMagic was about to take over another software company. Which of the following would violate insider trading rules?
I. The next day, you get an unsolicited call from a client requesting that you sell his shares in Video Magic, and you execute the trade.
II. You buy stock in Video Magic's target firm in anticipation that its stock price will rise when the information becomes public.
III. You recommend the stock of Video Magic's target firm to investors based on the fact that, on average, the stock price of target firms increases.

Question

Quizplus · Accepted Answer

Only selections II and III are violations of insider trading rules. If you receive an unsolicited call from a client requesting a sale (or purchase) of that firm's stock, it is not considered to be an insider transaction. If you have insider information from you brother about the merger of VideoMagic with another firm, you cannot buy stock yourself in the target firm in anticipation of a rise in price, nor
can you recommend the stock to customers based on your expectation of a stock price increase.

You Are Employed as an Agent with CanDo Broker-Dealers