Material Non-Public Information (MNPI)

💡 Plain English Explanation

Material Non-Public Information (MNPI) clauses are critical in financial transactions involving publicly traded companies, M&A deals, and investment discussions. MNPI refers to information that has not been made available to the general public and would likely influence an investor's decision to buy, sell, or hold a security.

Trading on MNPI violates federal securities laws, including Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. These clauses explicitly acknowledge that confidential information may include MNPI and establish protocols to prevent illegal insider trading. They are essential for hedge funds, private equity firms, investment banks, and any party evaluating potential transactions involving public securities.

MNPI clauses typically address:

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  Acknowledgment of MNPI status. The receiving party acknowledges that information received may constitute MNPI under securities laws.
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  Trading restrictions. Explicit prohibition on trading in securities of the disclosing party or related entities while in possession of MNPI.
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  Cleansing procedures. Mechanisms for removing MNPI status through public disclosure or passage of time.

⚠ Why This Clause Matters

Legal Liability: Insider trading violations can result in civil penalties of up to three times the profit gained or loss avoided, criminal fines up to $5 million for individuals ($25 million for entities), and imprisonment up to 20 years. Both the tipper and tippee face liability.

For Investment Firms: Clear MNPI provisions establish compliance protocols that satisfy regulatory requirements and demonstrate good faith efforts to prevent insider trading. This is critical for firms subject to SEC examination and FINRA oversight.

For Corporate Parties: When sharing information during M&A discussions, strategic partnerships, or financing rounds, these clauses protect against claims that the company facilitated insider trading by failing to adequately warn recipients about the nature of the information.

Deal Protection: MNPI clauses often include standstill provisions preventing the receiving party from acquiring securities of the disclosing party, protecting against unwanted takeover attempts during sensitive negotiations.

📄 Clause Versions

MATERIAL NON-PUBLIC INFORMATION

The Receiving Party acknowledges that some or all of the Confidential Information may constitute material non-public information ("MNPI") concerning the Disclosing Party or its affiliates within the meaning of applicable securities laws, including but not limited to Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.

The Receiving Party agrees that:

(a) It is aware of the restrictions imposed by United States securities laws on the purchase or sale of securities by any person who has received material non-public information and on the communication of such information to any other person;

(b) It will not purchase or sell, directly or indirectly, any securities of the Disclosing Party, its affiliates, or any other entity about which it receives MNPI in connection with this Agreement while in possession of such MNPI;

(c) It will not communicate any MNPI to any person other than its Representatives who (i) need to know such information for the Purpose, (ii) have been informed of the confidential and potentially material non-public nature of such information, and (iii) have agreed to comply with the restrictions set forth herein;

(d) It will establish and maintain appropriate information barriers and compliance procedures to prevent the unauthorized use or disclosure of MNPI.

The restrictions in this Section shall remain in effect until such time as the MNPI has been (i) publicly disclosed by the Disclosing Party, (ii) otherwise becomes public through no fault of the Receiving Party, or (iii) ceases to be material.

MATERIAL NON-PUBLIC INFORMATION AND SECURITIES COMPLIANCE

1. MNPI Acknowledgment. The Receiving Party acknowledges and agrees that:

(a) The Confidential Information contains or may contain material non-public information ("MNPI") concerning the Disclosing Party and/or its affiliates, subsidiaries, and related entities (collectively, "Related Entities") within the meaning of applicable federal and state securities laws;

(b) The Receiving Party is a sophisticated party familiar with the requirements and restrictions of applicable securities laws, including Section 10(b) and Section 14(e) of the Securities Exchange Act of 1934, Rules 10b-5 and 14e-3 promulgated thereunder, and comparable state laws;

(c) The Receiving Party understands that federal and state securities laws impose severe civil and criminal penalties on persons who trade in securities while in possession of MNPI or who tip such information to others who trade.

2. Trading Restrictions. The Receiving Party agrees that, during the Standstill Period (defined below), it shall not, and shall cause its affiliates and Representatives not to, directly or indirectly:

(a) Purchase, sell, pledge, hypothecate, or otherwise transfer or dispose of any securities of the Disclosing Party or any Related Entity, or any securities convertible into or exchangeable for such securities, or any options, warrants, or other rights to acquire such securities;

(b) Enter into any swap, hedge, derivative, or other arrangement that transfers economic interest in or exposure to such securities;

(c) Acquire, offer, or propose to acquire, or agree to acquire, any securities, assets, or business of the Disclosing Party or any Related Entity;

(d) Seek or propose any merger, consolidation, business combination, restructuring, recapitalization, or similar transaction involving the Disclosing Party or any Related Entity.

3. Standstill Period. The "Standstill Period" shall commence on the Effective Date and continue until the later of: (a) eighteen (18) months following the termination of discussions between the parties, or (b) six (6) months following the public disclosure of all MNPI received by the Receiving Party.

4. Cleansing. Information shall cease to constitute MNPI only upon:

(a) Disclosure in a public filing with the Securities and Exchange Commission;
(b) Issuance of a press release through a recognized news service; or
(c) Written confirmation from the Disclosing Party that such information is no longer material or has been publicly disclosed.

The mere passage of time shall not, by itself, cause information to cease being MNPI.

5. Compliance Procedures. The Receiving Party shall implement and maintain written compliance procedures reasonably designed to prevent violations of this Section, including restricted lists, watch lists, and information barriers as appropriate.

MATERIAL NON-PUBLIC INFORMATION

The Receiving Party acknowledges that certain Confidential Information may constitute material non-public information ("MNPI") under applicable securities laws.

(a) Legal Compliance. The Receiving Party is aware of its obligations under applicable securities laws with respect to MNPI and agrees to comply with all such laws. Nothing in this Agreement shall be construed to expand the Receiving Party's obligations beyond those imposed by applicable law.

(b) Trading Restrictions. The restrictions on trading in this Section apply only to:
    (i) Securities of the Disclosing Party (and not its affiliates or other entities);
    (ii) The specific individuals who actually receive MNPI (and not the Receiving Party's organization as a whole); and
    (iii) The period during which such individuals possess MNPI that has not been cleansed.

(c) Information Barriers. The Receiving Party represents that it maintains information barriers and compliance procedures consistent with industry standards. The Disclosing Party acknowledges that the Receiving Party may continue ordinary course trading activities through personnel who have not received MNPI, without liability under this Agreement.

(d) Cleansing. Information shall cease to constitute MNPI upon:
    (i) Public disclosure by any means;
    (ii) Passage of ninety (90) days from the date of disclosure;
    (iii) Determination by the Receiving Party's compliance personnel, in good faith, that such information is no longer material; or
    (iv) Notice from the Disclosing Party that such information may be cleansed.

(e) No Additional Standstill. This Agreement does not include any standstill, voting, or similar restrictions on the Receiving Party's acquisition activities except as expressly required by applicable law.

(f) Limitation of Liability. The Receiving Party's sole obligation with respect to MNPI shall be compliance with applicable securities laws. The Disclosing Party waives any claims under this Agreement arising from trading activities, except to the extent such activities violate applicable securities laws.

💬 Key Considerations

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  Understand Regulation FD implications. For public companies, selective disclosure of MNPI to certain parties may trigger Regulation FD requirements for simultaneous public disclosure.
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  Consider wall procedures. Investment firms should ensure their information barrier procedures are robust enough to permit continued trading by personnel without access to MNPI.
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  Define cleansing mechanisms clearly. Ambiguity about when MNPI status ends can leave parties uncertain about their trading restrictions for extended periods.
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  Address derivative securities. Ensure restrictions cover options, warrants, convertibles, and synthetic positions that provide economic exposure to the relevant securities.
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  Coordinate with compliance. Both parties should involve their securities compliance personnel in reviewing and implementing MNPI provisions before any information is exchanged.