Q:
The Chairman of Bright Star Life and Casual had a meeting with his broker this afternoon. During that meeting, the chairman informed the broker that a story was printed that morning about poor earnings projections for the company. The broker went back to his office and notified clients who own Bright Star Life and Casual. Does this act constitute a violation of insider trading laws?
a) Yes, the story only appeared that morning.
b) No, the chairman was relaying public information.
c) No, the broker is a professional confidante.
d) Yes, the chairman wasn't necessarily thinking.
A:
The correct answer is b)
Insider trading would include information that is material and non-public. Certainly, a poor earnings forecast is information that may be material to the price of the company's stock. However, the report has already been made public in the morning news. The broker should have already known anyway. No crime has been committed.

RELATED FAQS

  1. What's the difference between insider trading and insider information?

    Learn about insider information and insider trading and the differences between the two; both involve nonpublic information ...
  2. How often should I measure my company's key performance metrics (KPIs)?

    Learn the definition of illegal insider trading while reviewing the people who can be involved and the regulations and consequences ...
  3. Why do brokers ask for personal information before they make any trades?

    According to the Securities and Exchange Commission (SEC), there are three main reasons why a broker will ask for personal ...
  4. Can you accidentally engage in insider trading?

    Learn why it's possible to commit insider trading by accident, and why insider trading laws create logical inconsistencies ...
RELATED TERMS
  1. Give Up

    A procedure in securities or commodities trading where the executing ...
  2. Carrying Broker

    A commodities or securities broker who provides back office functions ...
  3. Forex Broker

    Firms that provide currency traders with access to a trading ...
  4. Material Insider Information

    Material information, about certain aspects of a company, that ...
  5. Two Dollar Broker

    A floor broker who executes orders for other brokers who cannot ...
  6. Each Way

    A slang phrase used when a broker earns commissions from both ...
Hot Definitions
  1. Agency Theory

    A supposition that explains the relationship between principals and agents in business. Agency theory is concerned with resolving ...
  2. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations ...
  3. Index

    A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is a hypothetical ...
  4. Return on Market Value of Equity - ROME

    Return on market value of equity (ROME) is a comparative measure typically used by analysts to identify companies that generate ...
  5. Majority Shareholder

    A person or entity that owns more than 50% of a company's outstanding shares. The majority shareholder is often the founder ...
  6. Competitive Advantage

    An advantage that a firm has over its competitors, allowing it to generate greater sales or margins and/or retain more customers ...
Trading Center