Example 1

An insider tells you that his firm will announce a significant drop in EPS for the upcoming year. The announcement will be released in three days. You can't trade. You can't recommend that your investors sell their positions. You can (and should) encourage the firm to disclose the information immediately.

Example 2

You are at an analysts' briefing for Horton Industries attended by 20 analysts. During the presentation, Horton's president indicates that the firm is considering closing its Alberta operations because of difficulty controlling costs at that location. He asks the audience not to act on this information yet because a final decision will not be made for at least another week. The analysts' briefing does NOT qualify as a public disclosure. You can not inform your clients of the new information and trade on their behalf.

Example 3

Barnes, the president of XYZ decides to accept a proposed tender offer. He tells this decision to his sister, who tells her daughter, who tells her husband, who tells his broker, who buys stocks for himself. The broker is prohibited from trading the XYZ stock because the information involves tender offer. However, the broker has no reason to believe a duty was breached in the transmission of the information.

Example 4

A passenger in an elevator overhears a conversation between two executives of a publicly traded company. The passenger trades the stock based on that information. The passenger does not violate the standard because the executives do not breach any duty and the information is not misappropriated.

Example 5

Walsh overhears that someone sneaked into the CEO's office and discovered information about a pending tender offer. Walsh subsequently trades the stock. Walsh violates the standard because the information is misappropriated and it concerns tender offer.

Example 6

An analyst fails to protect privacy when discussing nonpublic information in a conference call. Another employee overhears the information, and subsequently trades for his clients' accounts. The analyst violates the standard for lack of adequate procedures. The firm should have established information barriers, also called fire walls, between departments.

Example 7

A magazine has a weekly investment column. A magazine employee trades on information in the column before it is published. The employee violates the standard because the information is misappropriated.