Financial Industry Regulatory Authority (FINRA) Practice Exam 2026 - Free FINRA Practice Questions and Study Guide

The situation where an employee is allowed to trade on information without violating insider trading laws occurs when an independent analyst discusses potential earnings drops with the employee. In this context, the information shared is derived from an independent analysis and is likely publicly accessible, meaning it does not fall under the category of material nonpublic information. As long as the employee does not receive confidential or nonpublic information that could influence investment decisions, their actions would be in compliance with insider trading regulations.

In contrast, the other scenarios involve instances where the information could be categorized as nonpublic or confidential, which could lead to potential insider trading violations. For instance, learning about a government contract from a neighbor or overhearing details about acquisitions or a lawsuit involves obtaining privileged information that is not available to the general public, putting those trades in a gray area concerning legality. Thus, trading based on these types of information would violate insider trading laws.