Material Information
Quick Definition
Any information that a reasonable investor would consider important in making an investment decision, and that could affect a security's price.
Key Takeaways
- Information a reasonable investor would consider important for investment decisions
- Must be disclosed promptly by public companies under SEC rules
- Trading on material non-public information is illegal (insider trading)
- Defined by the Supreme Court as information with a "substantial likelihood" of importance
- Includes earnings, mergers, leadership changes, regulatory actions, and more
What Is Material Information?
Material information is any fact or data point that a reasonable investor would consider significant when deciding whether to buy, sell, or hold a security. Under SEC regulations, public companies must promptly disclose material information to ensure fair and transparent markets. The Supreme Court defined materiality in TSC Industries v. Northway (1976) as information where there is a "substantial likelihood that a reasonable shareholder would consider it important." Examples include earnings results, merger announcements, significant contract wins or losses, changes in executive leadership, regulatory actions, and product recalls. Trading on material non-public information (MNPI) constitutes insider trading, while failure to disclose material information can expose companies to securities fraud liability.
Material Information Example
- 1A biotech company's FDA approval for its flagship drug is material information that must be disclosed to the public before insiders can trade on it.
- 2The discovery of a significant accounting error that would reduce reported earnings by 30% is material information requiring immediate public disclosure.
Related Terms
Insider Trading
The illegal practice of trading securities based on material, non-public information obtained through a position of trust or confidence.
Form 8-K
A current report filed with the SEC to announce major events or material changes that shareholders should know about between regular filings.
Regulation FD
SEC rule requiring public companies to disclose material information to all investors simultaneously, preventing selective disclosure.
SEC (Securities and Exchange Commission)
The primary U.S. federal agency responsible for regulating securities markets, protecting investors, and enforcing federal securities laws.
Quiet Period
A legally mandated period when a company's communications with the public are restricted, typically before an IPO or around earnings announcements.
FDIC
Independent federal agency that insures bank deposits up to $250,000 per depositor, per institution, and supervises financial institutions for safety and soundness.
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