Material, non-public information (MNPI) is information about a company that (1) is material — would affect a reasonable investor's decision to buy, hold, or sell — and (2) is non-public — has not been disclosed to the general public through widely disseminated channels.
Defining "material": - A "reasonable investor" standard: Would a reasonable investor consider the information important in making an investment decision? - Examples of clearly material information: - Pending merger or acquisition. - Upcoming earnings announcement (especially if dramatically different from expectations). - Major litigation decision. - FDA drug approval or rejection. - Loss of a major customer or contract. - Management fraud.
Defining "non-public": - Information is non-public until it has been released through widely accessible channels (SEC filings, press release, news wire services). - Information overheard in a restaurant or disclosed only to select analysts is non-public. - The "market has absorbed" standard: even after release, there may be a brief period for the market to absorb information.
Selective disclosure — Regulation FD: - SEC Regulation FD (Fair Disclosure) prohibits public companies from disclosing material information to selected analysts or institutional investors without simultaneously disclosing it to the public. - Reg FD applies to issuers — not to the analysts or investors who receive selective disclosure.
MNPI handling: - Firms must maintain information barriers (Chinese walls) between their investment banking and sales/trading departments. - Restricted lists (securities in which the firm restricts trading while in possession of MNPI).
> Exam tip: MNPI + breach of duty = insider trading. Material = reasonable investor would care. Non-public = not yet widely available. Reg FD prohibits selective disclosure by issuers. Know both definitions cold for the Series 7 and Series 65.