A member trades in a security shortly before a public offering they are researching for a client, potentially taking advantage of nonpublic information. Violation?

• A. Standard I.D Misconduct
• B. Standard IV.B Fair Dealing
• C. Standard II.A Material Nonpublic Information
• D. Standard VI.A Disclosure of Conflicts

Answer: (C)

Using material nonpublic information to trade violates the duty to not act on or disclose such information. In this scenario, the member is researching an impending public offering and trades a security before that information is public. The information is both material (its disclosure could affect the security’s price) and nonpublic, so acting on it for personal gain breaches Standard II.A: Material Nonpublic Information. The core issue is insider trading—using confidential information to benefit oneself or a client before it becomes public. Choices about fair dealing or conflicts disclosure address different duties and don’t capture the prohibition on trading on nonpublic information.