Which CFA Institute Standard is violated when a portfolio manager trades on material nonpublic information about a company's earnings before the information is released to the public?

• A. Standard II.A Material Nonpublic Information
• B. Standard I.B Independence and Objectivity
• C. Standard VI.A Disclosure of Conflicts
• D. Standard V.C Record Retention

Answer: (A)

Trading on material nonpublic information violates the rule that professionals must not exploit information that could move a security’s price for personal gain, and must not tip it to others. Material nonpublic information is information that a reasonable investor would consider important in deciding whether to buy or sell a security, and which hasn’t been released to the public. Using that information to trade undermines market fairness and integrity, which is exactly what this standard protects. The standard covers both trading on MNPI and passing it to others who trade on it, keeping markets level for all participants.

The other standards address different duties: independence and objectivity focuses on avoiding bias in analysis; disclosure of conflicts deals with revealing conflicts; and record retention concerns preserving records. They aren’t about exploiting MNPI in trading, which is why the MNPI rule is the applicable standard here.