Securities Act 1934
A corporate executive learns that their company will announce better-than-expected earnings tomorrow. The executive immediately buys shares. This is an example of:
Insider trading = corporate MNPI. Front running = customer order knowledge. Both are prohibited.
Complete Analysis & Legal Rationale
This is insider trading - the executive traded on material nonpublic information (MNPI). The pending earnings announcement is material (would affect investment decisions) and nonpublic (not yet announced). Trading while aware of this information violates SEC Rule 10b-5.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Does not match the governing securities rule described in the explanation.
Does not match the governing securities rule described in the explanation.
Matches the verified teaching point in the explanation.
Does not match the governing securities rule described in the explanation.
Official Standard: Primary source referenced in the explanation (SEC Rule 10b-5.). Verify current text before launch.