The classification of information as price sensitive is important because it affects:
- companies' duties to disclose it
- whether or not using the information to trade with constitutes insider trading
The regulation of the disclosure and use of price-sensitive information is necessary to ensure that all investors are fairly treated.
Price sensitive information should be disclosed to all investors at the same time, and anyone who has access to it before it becomes public should not be able to profit from it.
Price sensitive information is just that: information that is likely to affect the price of a security. However information is not considered price sensitive unless it is specific and factual.
Other price sensitive information could (depending on circumstances) include:
- financial numbers: profit and sales figures in particular, but almost any part of the accounts should be treated as price sensitive
- information about takeover bids
- dealing in a company's securities by its directors
- large purchases and sales by major shareholders
- share buybacks, rights issues, changes to dividend policy and other corporate actions
- changes to corporate strategy, new product launches and any substantial changes to the business.
In practice, profit and sales numbers and information about takeover bids are the most likely to be exploited for insider trading. It is these that regulators pay the most attention to.
It is common for takeover bids to be rumoured before they are officially announced. This usually compels the target (and sometimes the bidder) to confirm or deny the rumours, even if only in vague terms.
There is information that does affect the price of shares that is not caught by the definition of price sensitive information. This is usually because the information is not specific or factual, or because the original source of the information is not a company insider.