Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

Who is subject to The Insider Trading Act?

1. Anyone who adheres to market regulations

2. Anyone who misuses material non-public information

3. Only corporate executives

4. Those trading on public knowledge only

The correct answer is: Anyone who misuses material non-public information

The correct answer focuses on individuals who misuse material non-public information, which is the core definition of insider trading. The Insider Trading Act is designed to prevent unfair advantages in the stock market by prohibiting individuals from trading based on information that is not available to the general public. This means anyone—whether a corporate executive, an employee with access to sensitive information, or even a friend or family member who receives a tip—can be subject to the Act if they engage in trading based on this non-public information. The focus is not just on their status within a company but rather on their actions concerning information that could influence the price of securities. Therefore, any misuse of such information constitutes a violation of the Act, highlighting its broad applicability to various individuals in connection to insider trading activities. Other options do not accurately reflect the criteria for being subject to the Insider Trading Act. Adhering to market regulations does not inherently prevent one from committing insider trading if they misuse non-public information. Claims about only corporate executives being implicated ignore the reality that insider trading can involve any person bearing such information. Finally, trading on public knowledge does not fall under insider trading regulations, as this information is available to everyone and does not create an unfair advantage.