One thing that I think about from time to time is that the notion of “material nonpublic information” is outdated and incoherent. In the olden days, you could have some simple intuitions about what constituted insider trading. Some news would obviously be material to a company’s stock price: If you knew that the company was about to announce a merger, or earnings that were much higher than analysts’ expectations, then you could expect that the stock would trade up a lot. So you could buy the stock before the announcement, wait a few days, and then sell the stock at a big profit right after the announcement.

Insider trading — trading on this sort of material nonpublic information — is generally illegal, and regulators policed it in intuitive ways: They look at stocks that move a lot on earnings or merger announcements and see if there’s any suspicious trading by anyone who might have inside information.

Meanwhile investors were regularly meeting with corporate managers and talking about their business. Of course they were! The investors wanted to make informed investment decisions, and the managers had a fiduciary duty to their shareholders to help them understand the business. It was good for the companies, and for the investors, to have these meetings.

Of course the managers were not supposed to give the investors any material nonpublic information in these meetings. You couldn’t have an investor meeting and say, like, “good news, we’re in talks to be acquired by Alphabet next week.” You couldn’t say “good news, we’re going to announce blowout earnings next week.” But the investors could try to get a more nuanced and detailed understanding of the public information; they could ask questions to sharpen their models and their sense of how the company made money. The managers could give the investors “color,” people used to say. Sometimes this was called the “ mosaic theory”: Management couldn’t just hand the investors big material news, but they could give the investors little pieces of information, and the investors could combine those pieces with other bits of information (public data, what they heard from other companies, etc.) to make informed investment decisions.

This whole structure rested on the idea that some information is “material” and therefore has to be disclosed to everyone equally, while other information is not material and yet sophisticated investors want to know it. That makes some crude intuitive sense: Merger news that will move the stock by 20% is material; nuanced news about earnings line items that will move the stock by 0.5% is not. News that would cause any retail investor to say “oh boy I’d better buy that stock” is material; news that only a sophisticated expert analyst would find interesting is not.

But that divide seems unstable right now. For one thing, prosecutors and judges seem skeptical. Here is a 2018 law firm memo asking “Is the mosaic theory as a defense to insider trading dead,” and I occasionally quote the time US Supreme Court Justice Sonia Sotomayor told a lawyer that there are “regulations to stop” companies “talking to analysts.”

But for another thing, modern markets really are more professional and efficient and competitive than they used to be, and the bar for what is material to investors probably is lower. If you are an analyst at a hedge fund, and you spend all your time thinking about a couple of dozen companies, and you buy lots of alternative data and talk to lots of experts and do lots of investigating of those companies, and you generally wring every possible insight out of public information to inform your trading decisions, well, analysts at a dozen other hedge funds are doing the same thing.

And if somebody at a company came to you and said “hey here’s a little piece of news that will move our stock by 0.5% next week,” that’s huge! Your portfolio manager runs a highly levered, factor-neutral, short-term investing strategy; if you can regularly bring her 0.5% idiosyncratic weekly profits, that translates into vast riches for all of you. Algorithmic trading firms mint billionaires by being right 51% of the time; a little bit of reliable edge, in modern markets, is hugely valuable. It makes no sense to say that it’s not material.

I talk a lot about stocks, but this is true everywhere. We talked a few weeks ago about a weird email from the US Labor Department’s Bureau of Labor Statistics to a list of “super users” of its inflation data, giving a bit of detail about why publicly announced inflation data was surprising. At the New York Times, Ben Casselman and Jeanna Smialek have more about the super users:

The Bureau of Labor Statistics shared more information about inflation with Wall Street “super users” than previously disclosed, emails from the agency show. … Emails obtained through a Freedom of Information Act request show that the agency — or at least the economist who sent the original email, a longtime but relatively low-ranking employee — was in regular communication with data users in the finance industry, apparently including analysts at major hedge funds. And they suggest that there was a list of super users, contrary to the agency’s denials. … Many of the recipients appear to have been in-house economists at large investment banks such as Barclays, Nomura and BNP Paribas. Others work for private research firms, which sell their analysis to investors. And some recipients appear to have been analysts at large hedge funds such as Millennium Capital Partners, Brevan Howard and Citadel, which trade directly on their research.

The emails were never material, exactly. But:

There is no evidence in the emails that the employee provided early access to coming statistical releases or directly shared other data that wasn’t available to the public. In several instances, the employee told users that he couldn’t provide information they had requested because it would require disclosing nonpublic data. But the emails show that the employee did engage in extended, one-on-one email exchanges with data users about how the inflation figures are put together. Such details, though highly technical, can be of significant interest to forecasters, who compete to predict inflation figures to hundredths of a percentage point. Those estimates, in turn, are used by investors making bets on the huge batches of securities that are tied to inflation or interest rates.

I think that there was once a view that sending hedge funds an inflation data release in advance is obviously bad, but answering their technical questions after the information is released is fine. The super users were the ones who really cared about the data, and helping them understand it better was good customer service and didn’t really hurt anyone else. But I’m not sure people think that anymore.