Material Non-Public Information
Material non-public information (MNPI) is any information about a publicly traded company or security that is both material — meaning a reasonable investor would consider it important in making an investment decision, or it would significantly affect the security's price — and has not yet been disclosed to the general public. Trading on MNPI constitutes insider trading, which is illegal under securities laws in most jurisdictions.
Key takeaways
- Information is 'material' if there is a substantial likelihood that a reasonable investor would consider it important, or if it would significantly affect the stock price — examples include unannounced earnings, pending mergers, FDA approvals, and major contract wins or losses.
- Information is 'non-public' until it has been broadly disseminated through methods such as SEC filings, press releases, or earnings calls — receipt by a select group of analysts or investors does not constitute public disclosure.
- Both the tipper (the person who discloses MNPI) and the tippee (the person who receives and trades on MNPI) can face liability under SEC Rule 10b-5 and Section 10(b) of the Securities Exchange Act.
- The SEC's Regulation FD (Fair Disclosure) prohibits companies from selectively disclosing material information to certain investors without simultaneously making it public.
- Hedge funds must maintain information barriers (Chinese walls) between personnel who may receive MNPI in one context (e.g., from corporate relationships) and investment personnel making trading decisions.
Explanation
Material non-public information sits at the heart of insider trading law and represents one of the most serious compliance risks facing hedge funds and investment managers. The prohibition on MNPI trading reflects the fundamental principle of market fairness: all investors should have equal access to information relevant to investment decisions, and those with superior information by virtue of their position or relationships should not be able to exploit that advantage at the expense of the general investing public.
The definition of materiality has been developed through decades of case law and SEC guidance. The seminal Supreme Court case TSC Industries v. Northway (1976) established the 'reasonable investor' standard: information is material if there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision. Courts have since identified a non-exhaustive list of categorically material information: earnings and financial results before announcement, pending mergers and acquisitions, regulatory approvals (particularly FDA decisions for pharmaceutical companies), major contract wins or losses, changes in key personnel, dividend actions, and significant litigation outcomes.
The non-public element requires that information not yet be in the public domain. Information released through an 8-K filing, press release, or earnings call is considered public once broadly disseminated. However, selective disclosure — sharing material information with a select group of analysts or favored institutional investors before a public announcement — is prohibited under SEC Regulation FD (2000). Information obtained through alternative data sources (satellite imagery, credit card data, web traffic analytics) occupies a complex legal grey area: such data may be material and non-public if it relates to a specific company's unreported results, even if the data itself is commercially available.
For hedge funds, MNPI risk arises through multiple channels: expert network consultations with company insiders, interactions with investment bankers or deal advisors, electronic communications between firm employees and corporate contacts, and the receipt of information in the course of due diligence on private investments. Robust compliance programs maintain information barriers between areas of the firm that may receive MNPI and investment personnel, establish procedures for evaluating whether received information is MNPI before any trading action is taken, and conduct regular employee training.
Example
A portfolio manager at a hedge fund participates in an expert network call with a former senior supply chain manager of a semiconductor company. The expert describes — based on knowledge from their recent employment — that the company's inventory buildup is far more severe than disclosed in public filings, and that a significant earnings shortfall is likely. This information is both material (it would significantly affect the stock price) and non-public (it has not been disclosed in any SEC filing or public communication). If the portfolio manager trades on this information by shorting the company's stock, both the portfolio manager and potentially the expert network and the expert could face insider trading liability.
Related terms
Alternative Data Dividend Exempt Reporting Adviser Hard Position Limit Hedge Fund Insider Trading Sec Securities And Exchange Commission Sfdr Sustainable Finance Disclosure Regulation Stock Swap Data Repository