How does the mosaic theory let analysts use non-public information legitimately?

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AcadiFi · Accepted Answer

Mosaic theory permits an analyst to combine public information and non-material non-public information to reach a material conclusion, then trade or publish on that conclusion...

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The key words are MATERIAL and NON-PUBLIC. MNPI requires BOTH. Non-material non-public information, by itself, can be used. And public information, obviously, can be used. Combining them can yield material insight without violating any law.

Mariam Oyekan, analyst at Dakar Equity Partners, covers a West African agribusiness. Her mosaic for a buy recommendation:
1. PUBLIC: Company's Q3 filing shows 18% revenue growth in specialty exports (filing)
2. PUBLIC: Government announced tariff reduction on cashew exports (press release)
3. NON-MATERIAL NON-PUBLIC: Her channel checks with three cashew wholesalers suggest volumes are up ~25% YoY (individual wholesaler stats not material)
4. NON-MATERIAL NON-PUBLIC: Scuttlebutt from a port logistics operator indicates this company's shipments up significantly (logistics data is not material in isolation)
5. ANALYSIS: Quantitative model combining the above suggests Q4 revenue will beat consensus by 12-15%

Conclusion: material investment thesis built from legitimately obtainable ingredients. Mariam can write a report recommending the stock. Her firm can trade on the report.

Where mosaic breaks down:
- One of the pieces is actually material non-public (a leaked earnings number)
- The 'non-material' piece was obtained via a tip from an insider acting improperly
- The analyst received confidential data under a duty of confidence
- The aggregator is someone who KNOWS the sources were improper

SEC enforcement cases against 'expert network' matchmakers (Primary Global Research in 2011, Level Global, Diamondback) show mosaic CAN be abused when the pieces are actually MNPI disguised as 'industry color'. Document your sources, verify independence, and maintain your research file: these protect both your integrity and your career.

How does the mosaic theory let analysts use non-public information legitimately?

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