What is Material Nonpublic Information?
Material Nonpublic Information is information that would affect the market value or trading of a security and that has not been disseminated to the general public. It is considered insider information.
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 nonpublic when it has not been adequately disclosed to the general public. Information ceases to be material, nonpublic information only when it has been widely disseminated to the public or is no longer material.
Examples of Material Nonpublic Information
Material, nonpublic 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 the 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 expectations.
What should you do if you have material nonpublic information?
Investment bankers who come into possession of material, nonpublic 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 such 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 material information.
Investment bankers should always use code names when talking about unannounced transactions.