Practice Quiz

FINRA Series 63 (NASAA)

Category - Series 63

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Your next-door neighbor’s brother works for a large pharmaceutical company and confided in her that one of the company’s chemists has just discovered a compound that will cure baldness and that the firm plans to make the discovery public later in the week. Your next-door neighbor passes this information on to you over a cup of coffee the next morning. You immediately call your broker and place an order to buy shares of the company’s stock. Has any illegal insider trading taken place?
  1. Yes. The agent who executes your purchase order has engaged in illegal insider trading.
  2. No. You are in no way related to your next-door neighbor’s brother, and she could have been lying.
  3. Yes. You, your neighbor, and her brother are all guilty of illegal insider trading.
  4. Yes. You are guilty of illegal insider trading because you traded on information that had not yet been made publicly available.
Explanation
Answer: D - Yes. You are guilty of illegal insider trading because you traded on information that was not yet public. Your neighbor and her brother did not execute any trades based on the information, so they’re innocent, as is the agent who executed your purchase order, who had no way of knowing that you had insider knowledge when you placed the order.
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