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The most common definition I read of Material Nonpublic Information is something like this:

Information is material if there is a substantial likelihood that a reasonable investor would consider it important in deciding whether to buy, hold or sell a security.

Clearly investors look for product announcements and trade on product announcement news so knowledge about any products would be considered important. Yet for example at companies that constantly build new products such as Apple there are a vast numbers of employees working on unannounced products: designers, marketers, engineers, etc. Clearly these employees know the specifications, features and expected release dates of these unannounced products. In many cases these employees receive stock through ESPP, ISO and/or RSUs and often sell while in possession of information about unannounced products.

I suspect very few or no non-Executive employees are filing with the SEC announcing their trades in advance. Some companies provide trading windows that apply to all employees but trading windows do not guarantee that insider trading cannot occur, they simply lessen the likelihood and may reduce the severity.

So is knowledge of unannounced products simply not considered material nonpublic information? If so why not? Alternatively does the SEC simply consider the advantage so small that it isn't worth investigating and prosecuting? Is there another answer?

Update, here is a concrete example:

An employee is granted RSUs, they vest 7 months before announcement of a new product. The employee knows the exact specifications of the product. If they sell the vested stock before the announcement would this constitute insider trading or not? Why?

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    "I suspect very few or no non-Executive employees are filing with the SEC..." Personally, I suspect that you may be generally incorrect here. At large public companies, information is not passed around between lightly, and trading of company stocks may be closely tracked, particularly if it exists in a company-sponsored 'stock option-type' plan. Certainly some people do attempt to commit fraud and circumvent detection, but that does not mean it is considered acceptable to the company / the SEC.
    – Grade 'Eh' Bacon
    Commented Feb 27, 2017 at 21:40
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    Receiving stock through a set it and forget it ESPP (or similar employee program) is materially different than going to your broker to buy or sell something based on inside information.
    – quid
    Commented Feb 27, 2017 at 22:29
  • @Grade 'Eh' Bacon Perhaps my example of Apple wasn't the best since they are probably very professional. There are thousands of small and medium size--but publicly traded--companies that use RSUs and ISOs for non-executive level employees.
    – satur9nine
    Commented Feb 27, 2017 at 22:35
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    Do you have evidence of employees with material info selling stock or are you assuming that this "happens all the time"?
    – D Stanley
    Commented Feb 27, 2017 at 23:13
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    I voted to close this because it's really about the law not personal investing. If you think you're privy to material insider information and are considering transacting stock you should probably talk to a lawyer not the internet.
    – quid
    Commented Feb 28, 2017 at 0:51

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So is knowledge of unannounced products simply not considered material nonpublic information?

Well "material" is relative but it certainly is nonpublic information. And trading based on that information would likely be considered illegal if it is actually material.

Many companies require that employees with material non-public info get stock trades approved by their legal department. This protects not only the employee but the employer from SEC scrutiny. If the legal department determines that the employee has non-public info that is the genesis of the stock trade, they might deny the request.

In many cases these employees receive stock through ESPP, ISO and/or RSUs and often sell while in possession of information about unannounced products.

Just receiving stock as part of as part of a compensation program would not be illegal, provided it was part of a normal compensation package and not deliberately awarded in advance of these types of events. Selling or outright buying stock (including RSUs) with that kind of information would certainly be scrutinized.

An employee is granted RSUs, they vest 7 months before announcement of a new product. The employee knows the exact specifications of the product. If they sell the vested stock before the announcement would this constitute insider trading or not? Why?

The law is not meant to prevent people from investing in their own company just because they know future plans. So knowledge of an announcement 7 months out may not be considered material. If, however, you sold stock the day (or a week) before some announcement that caused the stock to fall, then that would probably be scrutinized. Or, if you traded shortly before an announcement of a new, revolutionary product that was set to be released in seven months, and the stock rose, then you might be scrutinized.

So there is a lot of gray area, but remember that the spirit of the law is to prevent people from benefiting unfairly with non-public information. It would be hard to prove that gaining on a stock trade 7 months before a product announcement would be considered "unfair gain". A lot can happen in that time.

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  • I added a concrete example to my question. Your answer seems to indicate that receiving RSUs is not illegal at any time (as expected), but isn't clear about the legality of selling vested RSUs while holding knowledge of an unannounced product.
    – satur9nine
    Commented Feb 27, 2017 at 23:56
  • @satur9nine Receiving RSUs isn't illegal since 1) it's not triggered by insider info, and 2) its probably awarded to many employees, not just individuals and 3) there's often a vesting period. If an executive received a large RSU grant (and immediately vested) right before a major announcement , then it might be considered improper, but I don't think that's what you're taking about.
    – D Stanley
    Commented Feb 28, 2017 at 14:38
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There's the question whether knowledge about unannounced products is actually "material" if everyone (the public) knows that something new will be released. If you work at Apple on the development of the iPhone 8, that's not material. If you worked at Apple and you knew that they stopped developing new phones, that would be very, very, very material information.

The important thing as far as the stock market is concerned is what sales look like, and that's not something you know as a product developer.

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  • But if I worked at Apple and knew the specifications of the new CPU in the iPhone 8, or the resolution of the camera, or the screen size? Is that material? I'd say for iPhone 6 it was big news that they would produce 2 screen sizes.
    – satur9nine
    Commented Feb 28, 2017 at 0:35
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    @satur9nine It is material. Hence there are restrictions on when employees can purchase stocks. There is a freeze before and after launch window. Now the developer can buy the stocks way ahead, but he doesn't know whether the product will see light of the day ... there are tons of products that are under development that don't see the light of the day.
    – Dheer
    Commented Feb 28, 2017 at 6:20

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