Ethical Breach and Capital Market Integrity

In a recent high-profile case, a senior portfolio manager at a large investment firm was found to be trading on non-public information regarding a merger between two significant companies. Despite being aware of the ethical implications, the manager rationalized their actions by believing that the information was indirectly available in public discussions. This manager's actions raise essential questions about the integrity of capital markets and the responsibilities of investment professionals.

As a CFA charterholder, you are required to uphold the highest standards of ethical conduct and ensure the integrity of the markets. Consider the following questions in your essay response:

• What are the ethical implications of trading on non-public information, and how does it violate the CFA Institute's Code of Ethics and Standards of Professional Conduct?
• Discuss the broader impact of such unethical behavior on investor trust and market integrity.
• What actions should the firm take upon discovering these activities to ensure compliance and restore trust in the capital markets?
• Consider practical steps for preventing such ethical breaches in the future within the firm.