What Is Material News?
Material news is news that a company releases that might affect the value of its securities or influence investors' decisions. It is any type of news that directly relates to the company's business, and depending on the news, it will move the company's share price up or down.
- Material news includes information such as corporate events, earnings results, stock splits, and all other price-sensitive developments in a company.
- The release of material news can move the share price of a company's stock, either up or down, depending on the news.
- The New York Stock Exchange (NYSE) has rules around when a company can release material news.
- Material news is different from material insider information, which is information that has not been made public but will affect a company's share price.
- Many investors and funds have trading strategies based on material news.
Understanding Material News
Material news includes information such as corporate events, earnings results, stock splits, and all other price-sensitive developments in a company, including proposed acquisitions, mergers, profit warnings, and the resignation of directors.
The New York Stock Exchange (NYSE) Listed Company Manual requires listed companies to notify the NYSE at least 10 minutes in advance of any announcement of material news during trading hours so that NYSE can choose to temporarily halt trading in the company’s securities.
Because material news affects a company's stock price, depending on if the news is positive or negative, a company's share price will either increase or decrease. If there are significant drops in a company's share price, the NYSE can halt trading to prevent any market panic.
NYSE Material News Rules
On Dec. 4, 2017, the NYSE changed its rules to prohibit listed companies from issuing material news after the close of trading, which is 4 p.m. Eastern Time, until the earlier of the following scenarios: publication of the company’s official NYSE closing price or five minutes after the close of trading.
This 2017 change amended the earlier 2015 amendment of Section 202.06 of the NYSE Listed Company Manual, which merely requested or advised listed companies that wanted to release material news after the close of trading to wait 15 minutes, or till the publication of the company’s official closing price if posted earlier.
This delay is meant to avoid investor confusion in cases where trading on other markets continued after the close of trading on the NYSE, and information released by a company after the close of trading on the NYSE caused differences between the NYSE closing price and trading prices on other markets.
Despite the 2015 addition of advisory text in Section 202.06, the NYSE continued to experience situations where material news released shortly after the close of trading resulted in investor confusion. To avoid pricing disruptions when the NYSE closing auction is delayed more than five minutes, Section 202.06 as amended will continue to include advisory text requesting that companies avoid issuing material news until 15 minutes after the NYSE’s official closing time, or earlier publication of the company's official closing price.
The NYSE publishes its Listed Company Compliance Guidance annually, which should always be consulted for any changes in any NYSE policy.
Material News vs. Material Insider Information
Material news is the company's price-sensitive information announced publicly to shareholders, while material insider information is material information about certain aspects of a company that has not yet been made public, but that will have an impact on the company's share price once released.
It is illegal for holders of material insider information to use the information to their advantage in trading the company's stock or in providing the information to family members or friends so that they can use it to make trades.
Trading Material News
Algorithmic trading makes it easier for quantitative hedge funds to trade off of news headlines, compared to human reaction speeds. Oftentimes, when material news is released, a stock can move more pronounced initially, but recover after the new information has been digested by the marketplace. Traders can use algorithmic trading to take advantage of the few minutes or hours before the news has been digested and market recovery takes place.
In general, trading the news is a common strategy employed by many investors, who make decisions before or after material news is announced. The key areas to consider when trading the news is if the news is already priced into the stock's valuation and has the news met market expectations.