The correct answer is D, Insider trading. Insider trading occurs when an individual uses material, nonpublic information (MNPI) to make investment decisions for personal gain. Importantly, insider trading is not limited to corporate insiders like executives or directors—it also applies to corporate outsiders who improperly obtain such information and trade on it.
In this scenario, the outsider acquires confidential information and uses it for personal benefit, which is a direct violation of securities laws and SEC regulations. This undermines market fairness because it gives an unfair advantage over other investors who do not have access to the same information.
Choice A, Tipping, refers to the act of sharing MNPI with another person, who may then trade on it. Both the tipper and tippee can be held liable, but tipping itself is distinct from personally trading on the information.
Choice B, Churning involves excessive trading in a customer’s account to generate commissions and is unrelated.
Choice C, Front running involves trading ahead of a known customer order, not using inside information.
Thus, using material nonpublic information for personal trading—whether by an insider or outsider—is classified as insider trading, making choice D correct.
