Skip to content

CFA Level II Exam · Guidance for Standard II: Integrity of Capital Markets

Standard II(A): Material Nonpublic Information Explained

Updated 7 October 2026 · Fact-checked

Standard II(A) says members and candidates who possess material nonpublic information that could affect an investment's value must not act on it or cause others to act on it. Information is material if it would likely affect price or an investor's decision, and nonpublic if it has not been disseminated widely. Test both, then decide.

Understand Standard II(A): Material Nonpublic Information

Standard II(A) protects the fairness of capital markets. If some people trade on facts that others cannot see, trust in the market falls. The Standard asks you to stay out of that game.

The duty is simple: when you hold material nonpublic information, you must not act on it and must not cause others to act on it. Acting includes trading for yourself, for clients or for your firm. Causing others to act includes tipping a friend, a colleague or a client.

Information must meet both tests before the ban applies. Material means that disclosure would probably affect the price of a security, or that a reasonable investor would likely want it before deciding. Typical examples are earnings surprises, mergers and acquisitions, major asset sales, changes in dividends, debt defaults, regulatory actions, and major new products or contracts. Specificity, source reliability and the likely size of the price impact all bear on materiality; a specific, reliable detail from an insider is more likely to be material than a vague hint.

Nonpublic means the information has not been made available to the marketplace in general. Once it is disseminated to the market, for example through a press release, a regulatory filing or a wide news report, it is public. A private conversation with a company executive is not dissemination. Information disclosed only to a select group of analysts remains nonpublic until it is disseminated to the market in general.

If you conclude the information is both material and nonpublic, the right action is to stop. Do not trade. Do not tip. Take it to your compliance department. Where appropriate, encourage the issuer to make the information public. Firms should also have firewall and information barrier policies, and Standard II(A) works with them. A related idea is the mosaic theory: an analyst may use public information and nonmaterial nonpublic information to reach a conclusion, and that is not a violation. The resulting conclusion is not a violation even if it is material.

Key formulas to remember

Core duty
Possess material nonpublic information → do not act and do not cause others to act
Both conditions must be met. If either is missing, Standard II(A) does not prohibit the trade, though other Standards may apply.
Materiality test
Material = likely to affect the security's price OR likely to be important to a reasonable investor's decision
Consider how specific the information is, how reliable the source is, and how large its likely impact is.
Nonpublic test
Nonpublic = not yet disseminated to the marketplace in general
Disclosure to a select group, such as a private analyst call, does not make information public.
Mosaic theory
Public information + nonmaterial nonpublic information → permitted conclusion
An analyst may use public and nonmaterial nonpublic information. The resulting conclusion is not a violation, even if it is material.
Required response
Do not trade or tip → inform compliance → encourage public release where appropriate
Firewalls and information barriers support this duty.

How to solve Standard II(A): Material Nonpublic Information questions

Use the same sequence for every Standard II(A) item. It keeps you from reacting to details in the vignette that do not matter.

  1. 1Identify exactly what information the person has and where it came from.
  2. 2Ask whether it is material: would it likely move the price or matter to a reasonable investor? Weigh specificity, reliability and size of impact.
  3. 3Ask whether it is nonpublic: has it been disseminated to the market in general, or only to a select few?
  4. 4If both tests are met, check the action. Did the person trade, tip, or cause someone else to trade? That is a violation.
  5. 5If either test fails, Standard II(A) does not prohibit the action, though other Standards may still apply. The mosaic theory illustrates this: conclusions drawn from public and nonmaterial nonpublic inputs are permitted.
  6. 6Choose the answer that matches the Standard's required response: do not act, escalate to compliance, and encourage public release where appropriate.
  7. 7Name Standard II(A) in your reasoning and check that no other Standard, such as III(E) Preservation of Confidentiality or IV(A) Loyalty, changes the answer.

Quickest way: Two-test shortcut

When to use it: Use it when you are short of time and the vignette contains several people and conversations.

  1. Underline the fact being discussed.
  2. Write M for material and N for nonpublic, and mark each yes or no.
  3. Only M and N both yes means a trading or tipping ban.
  4. Pick the option that stops trading and escalates, rather than one that hides, delays or splits trades.
  5. If the answer choices include acting after public release, check the dissemination: if the information has been widely disseminated, it is public and II(A) no longer prohibits acting on it.

Common mistakes in Standard II(A): Material Nonpublic Information

  • Treating information as public because several people know it.

    Candidates equate wide circulation among insiders with public disclosure.

    Fix: Public means available to the marketplace in general. A private briefing to a few analysts is still nonpublic.

  • Assuming only trading is a violation.

    Insider trading is usually described as buying or selling.

    Fix: The Standard also bans causing others to act. Tipping a friend or advising a client on the basis of the information is a violation.

  • Calling every unpublished fact material.

    Candidates over-apply the rule once they see the word nonpublic.

    Fix: Test materiality separately. Trivial or non-price-relevant details do not trigger the ban, and the mosaic theory permits using them.

  • Thinking a mosaic conclusion is always banned if it moves the price.

    Candidates confuse the size of the conclusion with the nature of its inputs.

    Fix: Judge the inputs. If they are public or nonmaterial nonpublic, the resulting conclusion is allowed.

  • Ignoring the required action after finding material nonpublic information.

    Candidates stop at saying do not trade.

    Fix: Add the steps: inform compliance and, where appropriate, encourage the issuer to disclose publicly.

Worked examples

Example 1

Priya, an equity analyst, attends a private lunch with the CFO of Delta Components. The CFO says the company will announce a large acquisition next week and that it has not been disclosed. Priya has a client who holds Delta shares. 1) Is the information material? 2) Is it nonpublic? 3) What should Priya do?

Show the solution
  1. Material: a large acquisition would likely affect Delta's share price and matter to investors, so yes.
  2. Nonpublic: the CFO said it has not been disclosed and it came through a private lunch, so yes.
  3. Both tests are met, so Standard II(A) applies and she may not trade or advise the client to trade.
  4. She should tell her compliance department and not pass the information on to the client or others.

Answer: 1) Yes, material. 2) Yes, nonpublic. 3) Do not act or tip, and inform compliance.

Example 2

Marco, a retail analyst, visits several stores of Orbit Retail, observes heavy foot traffic, reads public filings, and speaks with a store manager who mentions a minor change in staff schedules. Marco concludes that sales will beat consensus and recommends a buy. 1) Is the schedule detail material nonpublic information? 2) Has Marco violated Standard II(A)? 3) What theory applies?

Show the solution
  1. The schedule change is not likely to affect the share price or a reasonable investor's decision, so it is nonmaterial.
  2. Foot traffic and filings are public or observable, and the manager's detail is nonmaterial nonpublic.
  3. Standard II(A) is violated only when the person acts on material nonpublic information. None is present.
  4. Combining these pieces is the mosaic theory, which is permitted even though Marco's conclusion is significant.

Answer: 1) No, it is nonmaterial. 2) No violation. 3) The mosaic theory.

Exam tips

  • Always test material and nonpublic as two separate questions, and write both before looking at the options.
  • Watch for selective disclosure. If information went only to a few analysts, it is still nonpublic.
  • Expect tipping scenarios. The answer is a violation even if the tipper did not trade.
  • Mosaic theory questions usually hide one key detail. Check whether any input is both material and nonpublic.
  • The best response option normally includes both refraining from action and consulting compliance.

Standard II(A): Material Nonpublic Information in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Standard II(A): Material Nonpublic Information: frequently asked questions

What is the difference between material and nonpublic information?

Material information would likely affect a security's price or an investor's decision. Nonpublic information has not been disseminated to the market in general. Standard II(A) applies only when information is both.

Does Standard II(A) apply if I only tip someone and do not trade?

Yes. The Standard prohibits acting or causing others to act on material nonpublic information. Passing it to a friend, colleague or client who then trades is a violation.

When does information become public under Standard II(A)?

It becomes public once it is disseminated to the marketplace in general, for example through a press release, regulatory filing or wide news coverage. A private call with a few analysts does not make it public.

What should I do if I receive material nonpublic information?

Do not trade or tip. Tell your compliance department, and where appropriate encourage the issuer to make the information public. Firm firewalls and information barriers support this.