Under Mosiac theory, if non material nonpublic information is combined with public information to arrive at the conclusion for recommendation, this is not a violation of Material nonpublic information[II(A)]. But who decides whether information is material? I have seen questions wherein research analyst assumes that information is not meaningful by itself. Is this assumption sufficient to qualify this information as non material or should the information be verified with someone in the firm or legal counsel?
From what I seem to recollect, if the information could affect investor’s decision, it is material, else not. It will pretty much vary on case to case basis but common material info is like change in leadership, getting new project, quarter results etc… I would say something that changes the ratios or investor sentiment toward the company is material. But then, I am terrible at Ethics so I am not certain.
its material if it can have an impact on whatever the scenario is. So if you overhear the CEO talking about some deal, that’s material. If your dentist thinks XYZ co. will acquire ZKB co., and it doesn’t say his brother is on the board or anything, then he doesn’t know what he’s talking about so it’s not material. You’ll know if it’s material or not. But the point is with mosaic you can paint a picture/mosaic of the whole story, and a piece of that can be material nonpublic info
@Andrew Are you sure about a piece being material nonpublic? I was also confused about it so I read and in the notes, I only see nonmaterial nonpublic info which could be part of mosiac story, not material nonpublic. If material info can be part of mosiac theory then isn’t it a clear opportunity for violators to use material info and make up the story that they just used it in part? I know you can pretty much judge which information is material and which information is not. But if exact information is not given in the question and analyst in question assumes that information is non material? What do we do?
ahh shoot you may be right. But if it sounds like the guy is gathering info from all different sources and painting a picture/mosaic then he’s probably ok. Sorry I’m not helping much, but look at some practice questions about this and let me know if you have any trouble w/ those.
AndrewUNH Wrote: ------------------------------------------------------- > its material if it can have an impact on whatever > the scenario is. So if you overhear the CEO > talking about some deal, that’s material. If your > dentist thinks XYZ co. will acquire ZKB co., and > it doesn’t say his brother is on the board or > anything, then he doesn’t know what he’s talking > about so it’s not material. You’ll know if it’s > material or not. But the point is with mosaic you > can paint a picture/mosaic of the whole story, and > a piece of that can be material nonpublic info Oh ya, now I remember reading that its not just substance and specificity, but also source that defines whether information is material or not… So until and unless a company insider tells you something important, you can pretty much use it on your mosaic if you keep the paperwork, right?
@Andrew Probably, I read the question wrong. I might have assumed that the analyst is assuming but actually it’s a given fact in the question. This could be one of the reason why I could have got the question wrong. But, I highly doubt if you could use material info in mosiac. I am going to cross check in CFAI books to make sure I am not misunderstanding anything.
Here is the link of Investopedia, which clearly indicates “nonmaterial” http://www.investopedia.com/terms/m/mosaictheory.asp
I think the idea is that you can use material public info (eg financial statements), and nonmaterial nonpublic info (eg talking to customers about what they think of a product) to form material conclusions. Material is anything that an investor would want to know before parting with their money. If you start off with material nonpublic info, it kinda ruins the whole process – as well as being possibly illegal/in breach of CFA ethics, it removes any analytical skill because the conclusion been handed to you on a plate 
right. If I overhear some CEO talking about buying XYZ inc, and then go buy XYZ inc., then that’s obviously a violation. But if I have thoroughly studied XYZ inc from a bunch of different sources and then overhear something about them getting bought out soon, then that is ok.