Material Nonpublic Information and Trading Restrictions

Summary

The document describes two related concepts used to assess information held by company executives and others with access to company affairs. Information is material if its release could affect a security’s price or a reasonable investor would want it before making an investment decision. Information is nonpublic if it has not been made generally available; sharing it with a selected group does not necessarily make it public.

In the example, a mining company receives assay results before its previously announced release date. The response treats those results as material nonpublic information and says a laboratory that receives them may also possess such information. It notes that trading on it would violate the CFA Institute’s ethical code, while stating that legal questions require legal advice. The short discussion does not define jurisdiction-specific disclosure deadlines, establish when a particular result crosses the materiality threshold, or provide a full account of insider-trading law. It offers a general ethical framing rather than legal guidance.

Key ideas

• Information is material when it could affect a security’s price or matter to a reasonable investment decision.
• Information shared only with selected analysts may still be nonpublic.
• Early access to significant laboratory results can create possession of material nonpublic information.
• The response identifies trading on such information as a CFA ethics violation.
• Specific disclosure duties and legal consequences depend on matters the document does not resolve.

Tags

# what is considered material information?


# what is considered material information?












I'm trying to understand what is considered "material" information held by an executive of a company. There is company information that an executive (say insider) will know that a public investor will not be privy to, but at which point does the information become material and at which point is the executive required to divulge the information into the public arena?

example: A mining company sends a rock to a lab to test it for gold. The company has stated that results will be announced in 4 weeks. The company obtains results (good or bad) from the lab after one week. They are now in possession of material information until the 4 week period they stipulated.

Additionally - I assume the lab is now considered an insider and cannot act on their information for profit. But this must happen all the time or is it very tightly controlled/regulated/respected?

## Answer by David Nehme (score 1, accepted)

https://quant.stackexchange.com/a/10030

The CFA institute defines "material" information as information that would change the price of a security if it was released or that a reasonable person would want to know before making an investment decision. Non-Public information is information that is not available to the general public. That could include information that was released to only a select group of analysts.

In your example, the lab would be in possession of material non-public information. The legality of trading on that information is for a lawyer to answer, but it would be a violation of the CFA code of ethics.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.