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

Who is considered an insider?

1. Anyone trading on the stock market

2. Officers, directors, and immediate family members of a company

3. Only major shareholders with over 50% ownership

4. Individuals working in the company's HR department

The correct answer is: Officers, directors, and immediate family members of a company

An insider is typically defined as individuals who have access to non-public, material information about a company. This includes company officers, directors, and immediate family members because they are directly involved in the company’s operations, governance, and strategic decisions. Their access to sensitive information can create potential for unfair advantages when trading in the company’s stock, which is why regulations surrounding insider trading are particularly stringent for these individuals. The other options do not accurately represent the definition of an insider. For example, while anyone trading on the stock market could influence market dynamics, they do not necessarily have insider information. Major shareholders are included in the insider definition, but it is not limited to them, as many insiders may hold far less than 50% ownership. Similarly, employees in the HR department may not have access to the material information that qualifies them as insiders unless they are also part of the upper management or directly involved in strategic decisions. Thus, the identification of officers, directors, and immediate family members as insiders aligns with regulatory frameworks and best practices regarding corporate governance and insider trading rules.