Which activity may be legal but is considered unethical by CFA Institute?

• A. Making legally required disclosures in marketing materials
• B. Trading while in possession of material nonpublic information
• C. Disclosure by an employee of his or her own company's dishonest activity
• D. Engaging in market manipulation

Answer: (B)

Trading while in possession of material nonpublic information highlights a fundamental ethic in finance: acting on information that others do not have access to gives you an unfair advantage and undermines market fairness. The CFA Institute’s ethics standards prohibit acting on material nonpublic information, regardless of whether such trading might be legal in some jurisdictions. The principle at stake is fairness to all investors and fiduciary responsibility to clients and employers. If you know information that could affect a security’s price and it hasn’t been made public, you should not trade on it or pass it to others who might trade on it. This keeps markets more level and protects the integrity of professional conduct.

By contrast, making legally required disclosures in marketing materials aligns with ethical standards, whistleblowing on a company’s dishonest activity is generally encouraged when done appropriately, and market manipulation is both unethical and illegal.