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

Trading on material, non-public information is referred to as what?

1. Market manipulation

2. Insider trading

3. Public trading

4. Speculative trading

The correct answer is: Insider trading

Trading on material, non-public information is referred to as insider trading. This practice involves buying or selling securities based on information that has not been made available to the general public and can significantly impact the stock price once disclosed. Insider trading is illegal because it violates the principle of fair play in the securities market, putting those who do not have access to such privileged information at a disadvantage. The rationale behind prohibiting insider trading is to maintain trust in the integrity of the financial markets. Regulatory bodies, such as the Securities and Exchange Commission (SEC) in the United States, actively monitor and enforce laws against this type of trading to ensure that all investors have equal access to information when making investment decisions. The other options relate to different concepts in trading. Market manipulation refers to behavior that artificially influences the price or supply of a security. Public trading involves trading securities on exchanges where all information is available to the public, while speculative trading usually refers to the act of buying and selling securities with the aim of making a profit from price fluctuations, often involving higher risk, but does not necessarily involve the use of non-public information.