Material Insider Information
What it is:
Material insider information is material, nonpublic information about a security or its. Information is material if it might reasonably influence the users of the ’s .
How it works (Example):
Let's assume you are vice president of finance for Company XYZ, and you know the company missed itsgoal for the quarter by three cents per share. However, the company not its press release regarding quarterly financial performance until tomorrow. You have material insider information. The information is material, in that it would affect the buy or sell decision of a reasonable investor, and it is nonpublic.
Insider information could include things such as:
- events regarding the defaults, calls for redemption, repurchase plans, splits, changes in dividends, changes to the rights of security holders, public or private sales of additional securities, and changes in ratings) ’s securities (e.g.,
- significant legal disputes
- government reports of economic trends
- orders for large trades before they are executed
The reliability of the source is important when determining whether something is material insider information. It is also important to analysts does not necessarily make the information public.that disclosing information to
Financial institutions and other companies commonly have "fire walls" to prevent the communication of material nonpublic information among departments of the same company. This maycontrolling interdepartmental communication, creating lists of that employees and their families are not permitted to buy or sell, and reviewing employees' trading activity.
Why it Matters:
Trading on material insider information is generally illegal. It erodes the public's confidence inby creating an unfair trading advantage. Punishment can include prison time, fines, restitution, damages and the loss of a number of professional licenses.
However, some insiders to publicly disclose their trades.is OK -- as long as the trader follows SEC regulations, which include limiting the times during which can trade company and requiring
It is important to issuer's CEO, the friend of an employee who works for the issuer, a for one of the issuer's directors, government employees who become aware of unannounced contracts with an issuer, etc.