Material non-public information (MNPI) is information about a company that investors do not yet have and that a reasonable investor would consider important in deciding whether to buy or sell its securities. Trading on it, or passing it to others, can break insider trading law when it breaches a duty of trust or confidence.
The two tests
Information is material when there is a substantial likelihood that a reasonable investor would treat it as important to an investment decision: unannounced results, a pending merger, a regulatory ruling or an undisclosed cybersecurity incident. It is non-public until it has been released in a way that reaches the market broadly, such as a press release or an SEC filing like a Form 8-K.
Both tests must be met, and whether a given item meets them is a judgement for the firm's counsel. The SEC's own description of insider trading covers tipping and misappropriation as well as trading.
How data teams test a source
A fund asks of any dataset where it came from and whether anyone could have breached a duty to supply it. The usual questions are:
- Was every source public at the moment it was collected?
- Was any login, paywall or confidential feed used?
- Did an insider, an employee or a company under confidentiality supply any of it?
- Does a record reveal one company's figures before the company released them?
The vendor's written answers go into the fund's due diligence questionnaire.
Common mistakes
- Assuming that data scraped from the web is public. A page behind a login is not.
- Accepting a vendor's assurance without a written description of its sources.
- Treating one test as enough. Public sourcing answers the non-public test, and materiality is a separate judgement about what the data shows.
In Fokals data
The sourcing statement sets out that every input is public at the time it is observed. Fokals data is collected from first-party company sources and public records, and processed in-house: what companies publish on their own websites and careers pages, what they announce and what they file.
Each record carries its source and the time it was observed, so a reviewer can see when a signal first existed. The compliance page gathers the documents.
Related terms
- Due diligence questionnaire (DDQ): how a buyer checks sourcing.
- Alternative data: the data type this question most often arises for.
- Data provenance: the record of where data came from.
- Form 8-K: one way a company makes information public.
Frequently asked questions
What is an example of material non-public information?
Examples are quarterly results before release, a planned acquisition, a pending regulatory decision, a significant contract won or lost, and a cybersecurity incident the company has not yet disclosed. Each is likely to move the price once known, and none is public until the company releases it, for instance in a press release or a Form 8-K.
Can alternative data contain MNPI?
It can if the way it was obtained gives access to what a company has not released, for example data supplied by an insider, taken from behind a login or provided under confidentiality. Data that companies publish themselves is public when it is read, though what it shows is still judged for materiality. Funds ask vendors to describe their sources in writing before using a dataset.
Who counts as an insider?
In the SEC's description, insiders include corporate officers, directors and employees who trade on confidential information. The same rules reach friends, business associates and family members who receive a tip, and others who misappropriate confidential information, for example from an employer. What matters is a breach of a duty of trust or confidence, not the job title.