Lesson 2 of 8 · 15 min
Standard II: Integrity of Capital Markets
Markets only work if no one trades on secrets or fakes prices: never act on material nonpublic information, and never distort prices or volume to mislead.
In short
- II(A) Material Nonpublic Information: if you hold information that is both material and nonpublic, you must not trade on it or cause anyone else to trade (tipping counts, even if the person never trades).
- Material: would likely move the price, or a reasonable investor would want it. Reliability of the source and clarity of the price effect matter.
- Nonpublic: not yet disseminated to the market in general. Telling a room of analysts does not make it public.
- Mosaic theory: conclusions built from public information plus nonmaterial nonpublic pieces may be acted on, even if they would be material had the company said them outright.
- II(B) Market Manipulation: no false information and no transactions intended to mislead about price or volume. Intent decides; legitimate strategies are fine.
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