Material Non-Public Information

This article outlines what material non-public information is and what to do when you come in possession of it.

What is Material Non-Public Information?

Material Non-Public Information is information that would affect the market value or trading of a security and has not been disseminated to the general public.

Information is considered to be “material” if its dissemination to the public would likely affect the market value or trading price of an issuer‘s securities (i.e. stock), or if it is information which, if disclosed, would likely influence a reasonable investor’s decision to purchase or sell an issuer’s securities.

Information is considered to be “non-public” when it has not been adequately disclosed to the general public. Information ceases to be material, nonpublic information only when it has been widely disclosed to the public or is no longer material.

 

What are examples of material non-public information?

Material, non-public information may include:

  • An issuer’s intention to launch a take-over bid, auction, public offering, private placement, stock repurchase, consolidation or split;
  • A pending covenant default under an issuer’s (or one of its material subsidiaries’) credit facilities or trust indenture;
  • A pending resignation or dismissal of one or more senior executives of an issuer or one of its material subsidiaries;
  • A pending purchase or sale of a significant asset or business;
  • Another issuer’s intention to commence a take-over bid or propose a merger involving the issuer;
  • A pending significant legal or regulatory proceeding or settlement;
  • A pending ratings change; or
  • A pending earnings release that is inconsistent with the Street’s expectations.

 

What should you do if you have material non-public information?

Investment bankers who come into possession of material, non-public information, regardless of the circumstances under which such information was received, must be extremely cautious in their use and disclosure of it. Furthermore, an investment banker should never personally benefit from any material, non-public information, nor may an investment banker disclose such information to others so that they may benefit personally from it.

Securities should be placed on a restricted list if the bank believes numerous employees have access to the information.

Investment bankers should always use code names when talking about unannounced transactions.

 

Additional information

Check out our resources section to learn more about corporate finance.

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