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Level III Core · Guidance for Standard II: Integrity of Capital Markets

Standard II(A): Material Nonpublic Information Explained

Updated 9 October 2026 · Fact-checked

Standard II(A) says members and candidates who possess material nonpublic information (MNPI) must not act on it or cause others to act on it. Information is material if it would affect an investment's price or an investor's decision. It is nonpublic if it has not been made widely available to the market.

Understand Standard II(A): Material Nonpublic Information

Standard II(A) protects fairness in the capital markets. If some people trade on information that others cannot get, investors lose faith that the market is level. The Standard exists to protect that trust.

The rule has two tests, and information must pass both before it is MNPI. Material means that disclosure would likely affect the price of a security, or that a reasonable investor would want to know it before deciding. Nonpublic means the information has not been disseminated to the marketplace in general.

Materiality depends on the nature of the information, its source and reliability, and its likely impact on the issuer. Earnings surprises, mergers and acquisitions, major litigation, regulatory actions, credit rating changes, and new products or discoveries are typical examples. Information from a source that is hard to confirm, or that is only speculation, is less likely to be material.

Information becomes public when it has been disseminated widely, for example through a press release, a regulatory filing or a broad news release. A select group of analysts hearing something on a private call does not make it public. Once the information has been disseminated to the marketplace in general, for example by a press release or filing, it is no longer nonpublic and you may act on it.

If you hold MNPI, you must not trade on it for yourself or for clients, and you must not pass it to someone who might trade. Your firm should also act. The usual first step is to encourage the issuer to make the information public. If that is not possible, you should ask your compliance team what to do. Firms normally use firewalls and restricted lists to keep MNPI contained. The Standard does not stop you from building a view from public data and non-material nonpublic data, which is the mosaic theory.

Key rules to remember

MNPI test
MNPI = Material AND Nonpublic
Both conditions must be met. Material but already public is not MNPI. Nonpublic but immaterial is not MNPI.
Materiality test
Material if disclosure would likely affect the security's price or a reasonable investor's decision
Consider the nature of the information, its source, its reliability and its likely impact on the issuer.
Nonpublic test
Nonpublic if not disseminated to the marketplace in general
Information given only to a select group, such as certain analysts, is still nonpublic.
Duty under Standard II(A)
Do not act, and do not cause others to act, on MNPI
This covers personal accounts, client accounts and tips to third parties.
Mosaic theory
Public information + non-material nonpublic information = permitted conclusion
An analyst may reach a material conclusion this way without violating the Standard.

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

Use this sequence for any vignette or constructed-response question on MNPI. State each test clearly so the marker sees the reasoning.

  1. 1Identify the information in the scenario and who has it: the member, the firm or a third party.
  2. 2Test materiality: would it likely move the price or matter to a reasonable investor? Consider its nature, source and reliability.
  3. 3Test nonpublic status: has it been broadly disseminated, or only shared with a select group or inside the firm?
  4. 4If both tests are met, classify it as MNPI. If either fails, say why it is not MNPI.
  5. 5Check the member's action: trading, recommending, tipping or changing client portfolios based on it.
  6. 6Check whether the information came from a mosaic of public and non-material data, which is permitted.
  7. 7State the required action: do not act, do not cause others to act, encourage public disclosure and consult compliance.
  8. 8Give a one-line conclusion tied to the command word, such as violated, not violated or what the member should do.

Quickest way: Two-gate check

When to use it: Use this when you have about two minutes for an item-set question and the options differ by whether the member may trade.

  1. Gate 1: is it material? Look for price-moving news such as mergers, earnings, litigation or rating changes.
  2. Gate 2: is it nonpublic? Look for words like private, confidential, leaked or told in a closed meeting.
  3. If both gates are passed, the answer is almost always do not trade or tip, and refer to compliance.
  4. If one gate fails, the member can generally act, but check for other Standards such as confidentiality or loyalty.
  5. Watch for mosaic theory wording, which usually signals no violation.

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

  • Treating any nonpublic information as MNPI.

    Students focus on the word nonpublic and skip the materiality test.

    Fix: Always run both tests. Nonpublic but immaterial information is not MNPI under this Standard.

  • Thinking information is public because many people at one firm or a few analysts know it.

    Wide internal circulation feels like public knowledge.

    Fix: Public means disseminated to the marketplace in general. A select group hearing it is not enough.

  • Believing the Standard only bans the member's own trading.

    Students forget the phrase cause others to act.

    Fix: Tipping a colleague, friend or client who might trade also breaches the Standard.

  • Saying the mosaic theory is a violation.

    Students see that the conclusion is material and assume that makes it MNPI, forgetting the Standard tests the individual inputs, not the conclusion.

    Fix: A conclusion built from public and non-material nonpublic data is permitted. The test is whether the individual inputs were MNPI.

  • Recommending that the member simply stay silent and keep trading client accounts as normal.

    Students think the duty is only about the member's own actions.

    Fix: Stop acting on the information and escalate to compliance. Where possible, encourage the issuer to disclose publicly.

  • Assuming that local law decides the answer.

    Students mix up legal insider-trading rules with the Standard.

    Fix: Under Standard I(A), you must follow the stricter of applicable law and the Code and Standards. Conduct may breach II(A) even if local law does not prohibit it.

Worked examples

Example 1

An analyst at a brokerage attends a private dinner hosted by the CFO of a listed manufacturer. The CFO tells the dinner guests that a very large customer will cancel its contract next month. The company has not announced this. The analyst's research team manages client portfolios that hold the stock. What should the analyst do under Standard II(A)?

Show the solution
  1. Information: a major customer cancelling a contract, not yet announced.
  2. Material? Losing a very large customer would likely affect the share price and matter to a reasonable investor, so it is material.
  3. Nonpublic? It was told only to dinner guests and has not been announced, so it is nonpublic.
  4. Both tests are met, so it is MNPI.
  5. The analyst must not sell the stock for clients or for personal accounts, and must not tell others who might trade.
  6. The analyst should inform compliance and ask it to place the stock on a restricted or watch list. The information came from the issuer's own CFO, so the analyst should not be the one to disclose it. Any public disclosure is for the company to make.

Answer: The information is MNPI. The analyst must not act on it or cause others to act on it, should escalate to compliance and ask for the stock to be placed on a restricted or watch list, and should not disclose the information personally.

Example 2

A portfolio manager gathers public filings, industry trade data and a store-traffic count from a supplier who mentions that foot traffic is slightly lower this quarter. The supplier's comment is not confidential and is of minor importance. From this the manager concludes that earnings will fall short of consensus and sells the holding. Has the manager breached Standard II(A)?

Show the solution
  1. List the inputs: public filings, trade data, and a minor remark about foot traffic.
  2. Check whether any single input is MNPI. The filings and trade data are public. The remark is nonpublic but of minor importance, so it is not material.
  3. Since no input is MNPI, the mosaic theory applies.
  4. The conclusion about earnings is material, but it was reached by combining public and non-material information.
  5. The Standard does not prohibit acting on such a conclusion.

Answer: No breach. Combining public and non-material nonpublic information is permitted under the mosaic theory, so the manager may act on the conclusion.

Exam tips

  • Write both tests by name, material and nonpublic, in every constructed-response answer on this topic.
  • When the command word is determine or identify, say whether the information is MNPI and give the reason in one sentence per test.
  • For recommended-action questions, include do not act, do not tip, escalate to compliance and encourage public disclosure.
  • Watch for mosaic theory in vignettes. A conclusion built from public data and immaterial private details is usually not a violation.
  • In item sets, read the answer options for causing others to act. A tip to a client or friend is as wrong as trading yourself.

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 material nonpublic information under the CFA Standards?

It is information that would likely affect a security's price or a reasonable investor's decision, and that has not been made widely available to the market. Both conditions must be met. Members must not act or cause others to act on it.

What is the difference between material and nonpublic information?

Material describes how important the information is to price or to investors' decisions. Nonpublic describes whether the market in general has it. Information can be one without the other, and only information that is both is MNPI.

How do I decide if information is material in a CFA ethics question?

Ask whether it would likely move the price or matter to a reasonable investor. Look at its nature, such as a merger or earnings surprise, and its source and reliability. Speculation or minor details are less likely to be material.

Can I trade if I used the mosaic theory?

Yes, if the pieces were public information or nonpublic information that is not material. Reaching a material conclusion from such pieces does not breach Standard II(A). If any single piece is MNPI, the protection is lost.