An employee trade is checked against explicit internal rules
Series III-A practice case · 4 questions · 1 mark each
Question 1 of 4Case practice
0 right · 0 wrong · 4 to go
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A fictional brokerage requires written pre-clearance before each employee personal trade. An approval is valid only on the calendar day it is issued. Shares on its restricted list may not be traded by employees. Neel receives approval on Monday to buy Alpha shares but places the order on Tuesday without seeking fresh approval. He also wants to buy Beta shares, which remain on the restricted list. During work, he learns confidential details of a client order. A friend asks for those details. The firm’s policy prohibits sharing them externally. Compliance asks for order records, approvals and relevant messages, and the record-retention policy prohibits deletion while a review is open.
The rules are supplied fictional internal policies.
The exercise tests applying those policies, not a statutory deadline or legal conclusion.
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The case and its answers
Every question of this case, with its answer and why each other option is wrong.
A fictional brokerage requires written pre-clearance before each employee personal trade. An approval is valid only on the calendar day it is issued. Shares on its restricted list may not be traded by employees. Neel receives approval on Monday to buy Alpha shares but places the order on Tuesday without seeking fresh approval. He also wants to buy Beta shares, which remain on the restricted list. During work, he learns confidential details of a client order. A friend asks for those details. The firm’s policy prohibits sharing them externally. Compliance asks for order records, approvals and relevant messages, and the record-retention policy prohibits deletion while a review is open.
The rules are supplied fictional internal policies.
The exercise tests applying those policies, not a statutory deadline or legal conclusion.
Q1Why does Neel’s Tuesday Alpha order fail the stated pre-clearance rule?
Option A. Monday’s approval had expired before the order — Correct answer
Option B. Alpha is stated to be on the restricted list
Why it is wrong: Only Beta is identified as restricted.
Option C. Written approval is never sufficient
Why it is wrong: The policy permits written approval, subject to its stated conditions.
Option D. Every approval is valid for five business days
Why it is wrong: The case expressly limits approval to the calendar day of issue.
Answer: A. The approval was valid only on Monday. Neel needed fresh written approval before a Tuesday order, even though he had obtained approval earlier. Remember: An approval must remain valid when the action occurs.
Hint, shown before you answer in practice mode: Compare the approval day with the order day.
IIIA-P-C01-Q1easyapplication
Q2What should Neel do about his proposed Beta purchase under the supplied rules?
Option A. Do not place it while Beta remains restricted — Correct answer
Option B. Use a friend’s account to place it for him
Why it is wrong: That attempts to evade the restriction rather than comply with it.
Option C. Treat the Alpha approval as approval for Beta
Why it is wrong: The approval concerns a different security and day.
Option D. Place it if the amount is small
Why it is wrong: The policy gives no small-trade exemption.
Answer: A. The policy prohibits employee trades in restricted shares. Neel should not proceed while Beta is restricted. An unrelated approval provides no exception. Remember: A separate prohibition is not removed by a general approval process.
Hint, shown before you answer in practice mode: The restriction is separate from ordinary pre-clearance.
IIIA-P-C01-Q2mediumapplication
Q3How should Neel respond to the friend’s request for confidential client-order details?
Option A. Share only the client name and order size
Why it is wrong: Those remain confidential order details.
Option B. Decline to share the details and follow the firm’s confidentiality process — Correct answer
Option C. Delete the message and send the information verbally
Why it is wrong: Changing the communication channel does not remove the confidentiality obligation.
Option D. Share them if the friend promises not to trade
Why it is wrong: The policy prohibits external sharing regardless of that promise.
Answer: B. The friend is an external recipient and the details are confidential. Neel should not disclose them and should follow the firm’s process for handling the request. Remember: Confidentiality depends on permitted access, not the medium used.
Hint, shown before you answer in practice mode: Apply the supplied rule to the information itself.
IIIA-P-C01-Q3mediumapplication
Q4What response best supports the open compliance review?
Option A. Delete messages that could look embarrassing
Why it is wrong: The stated retention rule prohibits deletion during an open review.
Option B. Provide only a verbal summary and discard originals
Why it is wrong: This removes evidence needed to verify timing and content.
Option C. Change the approval date to Tuesday
Why it is wrong: This would falsify the record rather than resolve the breach.
Option D. Preserve and provide the relevant approval, order and message records — Correct answer
Answer: D. Retaining approvals, orders and messages allows compliance to reconstruct the events. Records should be preserved accurately, not edited or selectively removed. Remember: An effective review depends on complete and trustworthy evidence.
Hint, shown before you answer in practice mode: The reviewer needs an accurate chronology and original evidence.
IIIA-P-C01-Q4mediumapplication
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