General Securities Sales Supervisor (Series10) Practice Exam

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Under the Insider Trading Act Amendments of 1988, who has potential civil liability?

  1. A person executing trades with inside information

  2. A registered representative trading for their own account

  3. The broker-dealer supervising a registered representative

  4. All listed individuals

The correct answer is: The broker-dealer supervising a registered representative

The Insider Trading Act Amendments of 1988 broadened the scope of civil liability associated with insider trading. Among the options, the broker-dealer supervising a registered representative can incur civil liability if the representative engages in insider trading. This is because the supervisor has a duty to monitor and enforce compliance with securities regulations within their firm. If they fail to adequately supervise their representatives and insider trading occurs, they may be held responsible for not taking necessary actions to prevent this illegal activity. Registered representatives and individuals executing trades with inside information also bear liability, but the focus on the supervisor underscores the regulatory expectation that broker-dealers maintain oversight to prevent violations from occurring. Thus, civil liability is not confined just to those directly executing trades but extends to those responsible for maintaining compliance within the firm, like the supervising broker-dealer.

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