Why is sharing material nonpublic information still a violation if I never trade on it myself?
I understand not trading on an improper tip. What I am less clear on is whether merely passing the information to a portfolio manager or teammate is already enough for a violation.
Yes. Under the CFA ethics framework, the problem is not limited to your own personal trade. Passing along material nonpublic information can cause others to act on it, and that is enough to create the breach.
Imagine research associate Mila Chen hears from a confidential lender call that Summit Fiber REIT will suspend its dividend next week. She does not place an order, but she messages the income PM to reduce the position before the announcement. The violation is already there because she transmitted material nonpublic information for investment use.
The safe rule is:
- if information is material and nonpublic, do not trade on it
- do not forward it
- do not hint at it
- do not structure recommendations around it
The standard reaches conduct that causes others to act, not only conduct that benefits your own account.
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