CISI Professional Practice Exam 2025 – Complete Prep Guide

Insider trading refers to the buying or selling of securities based on material, non-public information about a company. The implications of insider trading are significant, particularly regarding the integrity of the financial markets.

When insider trading occurs, it creates an uneven playing field for investors. Those with access to privileged information can make decisions that others cannot, leading to a lack of trust in the markets. If investors believe that they are at a disadvantage because certain market participants have inside information, it can deter them from investing, which ultimately undermines market integrity. This erodes confidence in the fairness and transparency of the financial system, leading to a higher likelihood of regulatory scrutiny and potentially severe penalties for those involved.

In contrast, the other options present misleading views on insider trading. Claiming that it is acceptable under certain conditions fails to recognize the broad consensus in regulatory environments that it should be prohibited. Additionally, the assertion that insider trading enhances market stability ignores that it often leads to volatility and manipulation. Similarly, describing insider trading as a regulatory requirement fundamentally contradicts regulatory frameworks designed to prevent it in order to maintain fair market practices.