Ethical Dilemma in Insider Trading and Market Integrity

As a portfolio manager at a large investment firm, you are aware that significant market-moving news is about to be released regarding a merger between two major corporations, Company A and Company B. Your firm has a substantial position in Company A, and you know that this news could potentially create a trading advantage for your firm. However, you also have a responsibility to maintain the integrity of the capital markets and adhere to ethical standards.

The day before the news is announced, your colleague suggests that you should take advantage of this information and increase your position in Company A ahead of the announcement. He presents a compelling argument that your firm would benefit greatly from maximized returns and that this strategy is common practice in the industry.

Given your commitment to ethical behavior and compliance with the CFA Institute's Code of Ethics and Standards of Professional Conduct, outline how you would approach this situation. Discuss the ethical implications of acting on the non-public information and provide a recommendation for how to proceed while maintaining the integrity of the capital markets.