What Counts as Material Non-Public Information Under Securities Law
How courts and regulators define the information that, if traded on in secret, becomes illegal insider trading.
- Material non-public information (MNPI) is any fact not yet known to the market that would influence a reasonable investor's decision to buy, sell, or hold a security.
- Both prongs must be true: the information must be material AND non-public; neither alone makes trading illegal.
- The SEC and courts use a 'reasonable investor' test, not a certainty test—meaning even uncertain or preliminary facts can count as MNPI.
- Your own analysis, public data, and educated guesses don't become MNPI just because they're valuable; you need actual confidential information.
Material non-public information (MNPI) is any fact about a company or security that (1) would influence a reasonable investor's decision to buy, sell, or hold, and (2) is not yet known to the general public or market participants. Under U.S. securities law, trading on MNPI is insider trading—a federal crime and civil violation. The definition sounds simple but hinges on two slippery concepts: materiality and what counts as 'public.'
The Materiality Test: Would It Change an Investor's Mind?
Materiality is not about how much money is at stake—it's about whether a fact would reasonably influence an investor's decision. The Supreme Court's standard, set in TSC Industries v. Northway, asks whether there is a substantial likelihood that a reasonable investor would consider the information important. A $50 million loss for a $500 billion company might not be material; the same loss for a $100 million company likely is.
The SEC and courts don't require certainty. A merger that's 90% likely to close, a product that's in late-stage trials, or a pending regulatory decision all count as material even if not final. What matters is whether the fact, if disclosed, would shift how a reasonable investor thinks about the company's prospects. Preliminary or contingent information qualifies—you can't hide a deal because the paperwork isn't signed.
The Non-Public Prong: When Is Information 'Out There'?
Non-public means the information has not been disseminated to the market in a way that allows investors to act on it. A fact disclosed in a press release, SEC filing, earnings call, or widely reported news story is public. But information known only to insiders, shared under confidentiality agreements, or disclosed to a small group of professionals (like bankers or lawyers) remains non-public, even if technically 'out there' in a narrow circle.
The timing and reach matter. Information that will be public tomorrow is still non-public today. A tip to a single analyst or investor doesn't make it public. The test is whether the information has been sufficiently disseminated so that the market price reflects it—or could reflect it if investors had time to act. Rumors, speculation, and third-hand gossip don't count as public disclosure unless they're accurate and widely known.
What MNPI Is NOT: Analysis, Synthesis, and Deduction
A critical boundary: your own analysis of public information is not MNPI, even if it's brilliant or proprietary. If you read a company's quarterly filings, competitor announcements, and industry reports, then deduce that a merger is likely, that insight is yours to trade on. The Mosaic Theory—a legal doctrine that protects this kind of work—holds that assembling pieces of public information into a coherent picture does not become insider trading. You need actual confidential information, not just smarter reasoning.
Similarly, information you develop independently (a new valuation model, a market forecast, a supply-chain analysis) is not MNPI. The law protects the fruits of legitimate research. What crosses the line is trading on facts that someone else obtained in breach of a duty—a corporate officer leaking earnings, a banker disclosing deal terms, a scientist revealing lab results before publication.
Why This Matters and When It Applies
The MNPI definition is the legal boundary between legitimate investing and insider trading. It matters because the consequences are severe: criminal prosecution, prison time, civil fines, and disgorgement of profits. But it also matters because the definition is narrow enough to protect active investors, analysts, and researchers who do their homework. If every smart trade were illegal, capital markets wouldn't work. The law draws the line at confidential information obtained through breach of duty, not at superior analysis.
The definition applies to anyone who trades on MNPI, whether you're a CEO, a hedge fund manager, a journalist, or a retail investor who overheard something at a party. It also applies to tipping—giving MNPI to someone else so they can trade on it. And it applies across all securities: stocks, bonds, options, cryptocurrencies, derivatives. The medium and the trader's sophistication don't matter; the information does.
- Material: Would a reasonable investor consider this fact important in deciding to buy, sell, or hold?
- Non-Public: Has this information been sufficiently disseminated to the market, or is it still known only to insiders or a confidential circle?
- A deal that's 80% likely vs. 50% likely: Both can be material; the threshold is 'substantial likelihood,' not certainty.
- Information shared with a small group under NDA: Still non-public, even if technically disclosed.
- Your own deduction from public filings: Not MNPI; protected by the Mosaic Theory.
- A rumor confirmed by your source at the company: MNPI if your source had a duty to keep it confidential.
Sources
- TSC Industries v. Northway, Inc., 426 U.S. 438 (1976)—Supreme Court's materiality standard.
- SEC Rule 10b-5 and Section 10(b) of the Securities Exchange Act of 1934—foundational insider trading prohibitions.
- U.S. v. O'Brien, 391 U.S. 367 (1968), and SEC enforcement guidance on non-public information and breach of duty.
