What counts as material non-public information under CFA standards?

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AcadiFi · Accepted Answer

Standard II(A) — Material Nonpublic Information — prohibits acting on or causing others to act on MNPI. Two tests must be met: materiality AND non-public status.

MATERIALITY — Would a reasonable investor consider the information important in making an investment decision? Or would it likely affect the security price? Examples clearly material:
- Earnings significantly different from consensus
- M&A negotiations
- Large contract wins or losses
- Regulatory approvals or rejections
- Management changes (CEO, CFO)
- Bankruptcy or liquidity crisis
- Credit rating changes

Grey areas include: mid-sized product launches, competitor moves, management personal matters, gradual operational shifts.

NON-PUBLIC — Information not generally disseminated. 'Public' means disseminated through effective channels: press release, SEC filing, broadly distributed news. Selective disclosure to a few analysts is NOT public.

```mermaid
flowchart TD
  A[Information Received] --> B{Material?}
  B -->|No| C[Can Use]
  B -->|Yes| D{Public?}
  D -->|Yes| C
  D -->|No| E[Cannot Trade or Tip]
  E --> F[Mosaic Theory Possible]
```

In 2026, Thierry Beaumontagne, an analyst at Lyon Credit Research, got a call from his friend at a distressed bond issuer's finance department who mentioned 'we're about to breach our covenant.' This is clearly material (will move bond prices) and clearly non-public (not in any filing). Thierry:
1. Cannot trade on this information (personal or firm accounts)
2. Cannot 'tip' colleagues, clients, or family
3. Should notify compliance immediately
4. May have to place the security on the restricted list

Penalties are severe: SEC actions, criminal charges (up to 20 years for willful violations), civil disgorgement of 3x profits. Even perceived MNPI problems cost careers. The 'mosaic theory' allows combining public+non-material pieces to reach material conclusions — that's legitimate analytical work, not MNPI.

What counts as material non-public information under CFA standards?

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