Did that meeting discuss ‘inside information’? Insights from the USA and EU on when confidential information becomes material

Abstract

This paper aims to provide insights into the moment in which a piece of information becomes ‘inside information’; that is, information that cannot be abused by trading in the market, what in the USA is called ‘material non-public information’. In the EU, the notion of ‘inside information’ is also relevant to establish the disclosure duties for listed companies, which have to publish such information almost immediately (‘as soon as possible’), unless several conditions that allow the delay of disclosure are continuously met. In addition, if listed companies decide to delay, they have to record inside information, protect it, establish and update an ‘insiders list’, suspend buy-back programmes and monitor that the delay of disclosure does not result in misleading investors. Therefore, in such a framework, a crucial question listed companies have to ask themselves is whether confidential information circulating within the company is already ‘inside information’ or not. In this respect, owing to the twofold notion of inside information, an analysis of US cases of insider trading investigated by the Securities and Exchange Commission (SEC) over the decades is addressed here and insights from the related economic literature are offered in order to develop a concrete understanding of when information becomes ‘inside information’.