What is MNPI? – Defining “Material” and “Non-Public”
The Meaning of “Material” in the MNPI Context
Material information is any data that a reasonable investor would likely consider important in making an investment decision. This includes information that could affect the market value of a security or influence a buy/sell decision.
If you come into contact with MNPI, you are not permitted to use it for your personal benefit. You are also not allowed to disseminate the information so others (including family members, friends, colleagues, or clients) can gain from it either.
Attend Comply’s upcoming education session Two Persistent Compliance Challenges: Insider Trading and Advisory Contracts to learn more.
Examples: – A pending merger or acquisition – Unexpected earnings results – Regulatory approval or denial of a product
What Qualifies as “Non-Public” Information?
Information is non-public if it has not been disseminated in a manner making it available to the investing public. Even if a few people are aware, unless it’s broadly and publicly available (e.g., via a press release or SEC filing), it’s non-public.
Illustrative Examples of MNPI in Practice
Whether a particular piece of information is MNPI depends on a fact‑specific analysis of materiality and non‑public status; mere advance knowledge alone is not automatically MNPI unless it meets both prongs. For example:
- Learning about a CEO resignation before it’s publicly announced
- Accessing a client’s portfolio strategy during a blackout period
- Receiving pre-IPO financials through an expert network
Why MNPI Matters to Financial Advisers
How MNPI Misuse Undermines Fiduciary Duty
As fiduciaries, advisers must act in clients’ best interests. Trading on or failing to control MNPI violates this duty and creates conflicts of interest.
Insider Trading Risks and Adviser–Client Relationships
If advisers or their personnel use MNPI—intentionally or otherwise—it erodes trust and exposes both the adviser and client to regulatory and financial harm.
Reputational and Regulatory Consequences
Even inadvertent misuse can lead to enforcement actions, reputational damage, and client loss. Regulatory penalties for MNPI violations are severe.
Regulatory and Legal Framework for Advisers
Section 204A of the Investment Advisers Act of 1940
Section 204A of the Investment Advisers Act of 1940 requires an investment adviser to establish, maintain and enforce written policies and procedures that are reasonably designed—taking into account the nature of the adviser’s business—to prevent the misuse of material non‑public information (MNPI) by the adviser or any person associated with the adviser. The implementing regulation for many advisers is Adviser Act Rule 204A‑1 (the Code of Ethics Rule).
Rule 206(4)-7 (Compliance Rule)
Under Advisers Act Rule 206(4)‑7, an SEC‑registered investment adviser must adopt and implement written policies and procedures reasonably designed to prevent violation of the Advisers Act and its rules (including the misuse of MNPI). The adviser must review, at least annually, the adequacy of the policies and procedures and make any necessary changes.
SEC Risk Alerts and Guidance
The 2022 SEC Risk Alert highlighted common deficiencies: poor documentation of MNPI policies, lack of controls around alternative data and expert networks, and untrained access persons.
Who is Covered – Access Persons, Advisers, Outsiders
Defining Access Persons
Under the adviser’s Code of Ethics (as required by Rule 204A‑1), an ‘access person’ is a supervised person who (i) has access to non‑public information about client transactions or reportable fund holdings, (ii) is in a position to affect the advice given to clients, or (iii) has access to such advice. Typically this includes portfolio managers, traders, senior officers, and persons who may receive MNPI through alternative means. The adviser’s policy should define and identify access persons and monitor their holdings and trades accordingly.
“Access persons” are employees with access to nonpublic information about client holdings or firm recommendations. This typically includes portfolio managers, traders, and C-level executives.
Family, Clients, and Third Parties
Firms must account for risk from: – Employees sharing MNPI with friends or family – Clients who could act on shared portfolio or firm insight – Outside parties like consultants or expert networks
Private Market Exposures
Even private funds and venture capital investors may encounter MNPI through board seats or fund co-investments.
Common Sources and Types of MNPI Relevant to Advisers
Traditional Sources
- Mergers and acquisitions
- Leadership changes
- Non-public financial results
Non-Traditional Sources
- Expert networks
- Satellite imaging and geolocation data
- AI-generated consumer behavior insights
Adviser-Specific Scenarios
- Exposure through fund manager conversations
- Data received during diligence or issuer discussions
- MNPI from access to public company insiders
Identifying Materiality and Non-Public Status
The “Reasonable Investor” Test
If a reasonable investor would consider the information important, it’s material. Legal precedent often leans on this standard.
When Information Ceases to be Non-Public
Information typically ceases to be non‑public when it has been disseminated in a way that makes it available to the investing public—for example, via an SEC filing, widely‑distributed press release or publicly‑accessible investor call—and enough time has passed for the market to absorb it. Firms often set internal cooling‑off or waiting periods to ensure the information is broadly disseminated before trading.
Adviser Obligations: Policies, Procedures, and Training
Designing a Written Policy
Advisers must create clear MNPI policies tailored to their firm structure, business model, and risk profile.
Tailoring to Your Business Model
For firms using expert networks or accessing alternative data, policies must define: – Permitted and prohibited information types – Internal firewalls and access restrictions
Training and Monitoring
Firms must: – Train staff regularly on MNPI scenarios – Maintain training logs – Monitor access and trade logs
Information Barriers, Restricted Lists, and Access Controls
Implementing Barriers
Firms should implement physical and digital barriers (e.g., separate systems, access rights) to manage MNPI.
Restricted and Watch Lists
Firms should maintain and update restricted lists and watch lists for securities with known MNPI exposure.
Monitoring & Surveillance
Systems should flag: – Trades during restricted periods – MNPI access preceding trade activity
Handling MNPI in Adviser Workflows
When You Encounter MNPI
Document the incident, restrict affected securities, and notify compliance.
Adjusting Portfolio Management and Communications
Delay trading activity until information becomes public. Communicate caution to clients without revealing MNPI.
Exit Strategies and Timing
Use post-disclosure cooling-off periods before initiating trades.
Enforcement Examples and Lessons for Advisers
Real-World Enforcement
The SEC has charged advisory firms for MNPI lapses in connection with board seats, expert calls, and client information misuse.
Common Deficiencies Noted by Regulators
- No documentation of restricted list updates
- Failure to supervise access persons
- Inconsistent trade surveillance
Key Lessons
- MNPI lapses often stem from control gaps
- Documentation is as critical as intention
- Oversight must be proactive, not reactive
Integrating MNPI Risk into Your Compliance Framework
Conduct a Risk Assessment
Identify business units, employees, vendors, or scenarios with higher MNPI exposure.
Connect to Policies and Controls
Each MNPI risk must tie to a specific policy, review process, and training control.
Escalation and Reporting Paths
Create documented processes for escalating and remediating MNPI breaches.
Practical Checklist for Financial Advisers
This checklist is a starting point — firms should tailor each item to their business, and documentation of the risk‑analysis and effectiveness testing is critical.
- Review and update MNPI policy
- Identify all access persons
- Maintain restricted and watch lists
- Log and monitor expert network engagements
- Implement MNPI training at least annually
- Document incidents and escalations
- Review trades for potential MNPI conflicts
- Assess vendor risk for data sources
- Test compliance with your policies quarterly
- Update compliance calendar with MNPI tasks
Future Trends and Emerging Risks
Alternative Data
As advisers seek data edges, regulators are watching how non-traditional sources intersect with MNPI.
Crypto and Private Markets
With less transparency, private assets and digital tokens pose unique materiality and dissemination challenges. While private company disclosures, co‑investments and digital assets raise heightened MNPI/compliance risks, firms should first evaluate whether the asset is a security subject to applicable laws, whether there is a market in which the asset trades, and whether non‑public information may be ‘material’ to that market. Policies should consider these nuances rather than treat all digital‑asset exposures identically.
Cross-Border MNPI Rules
Advisers with global operations must account for different MNPI definitions and regulatory thresholds. In the U.K., under the FCA’s Market Abuse Regulation (MAR) regime, firms may have obligations around the handling of inside information, and advisers operating cross‑border must ensure compliance both with the SEC’s regime and any relevant foreign jurisdiction.
Conclusion
MNPI is not just a securities law concern—it’s a core compliance and fiduciary issue. Advisory firms that invest in the right controls, training, and surveillance now will be positioned to manage risk, serve clients better, and withstand scrutiny. In a world of increasingly fast, fragmented data, real-time oversight of MNPI is no longer optional—it’s imperative.
Quick Takeaways
- MNPI is any non-public information that would influence a reasonable investor’s decision.
- Advisers must design, implement, and test written procedures to prevent misuse of MNPI.
- Policies must be updated for emerging risks: alternative data, digital assets, private exposures.
- Access persons, expert networks, and communications are key control points.
- Strong documentation and training are essential to defensibility.
FAQs
What is MNPI?
MNPI (Material Non-Public Information) is information that could affect a security’s price but hasn’t been disclosed to the public.
Who is considered an access person?
Access persons are employees with access to client portfolios or investment decisions—typically traders, PMs, and senior staff.
How often should MNPI policies be reviewed?
At least annually, and anytime your firm’s strategy, personnel, or vendor relationships change.
Can alternative data be MNPI?
Yes. If alternative data is both material and non-public, its use could trigger regulatory scrutiny.
What are common MNPI policy gaps?
Missing training logs, no restricted list, lack of documentation on MNPI incidents, and inconsistent surveillance.