Three months after these discussions began, Basic asked the New York Stock Exchange to suspend trading in its shares and issued a release stating that it had been "approached" by another company concerning a merger.

[3] The Court of Appeals also reversed and remanded the decision on summary judgment, holding that although Basic did not have an affirmative duty to disclose the merger discussions, it could not release misleading statements.

The U.S. Supreme Court then granted certiorari to resolve a circuit split on the materiality issue and determine the propriety of the fraud-on-the-market theory.

Justice Blackmun, writing for the majority, first examined the underlying policy behind the Securities Exchange Act: to protect investors against manipulation of stock prices.

Blackmun reviewed and rejected the Third Circuit test that merger discussions become material only when an agreement in principle has been reached, finding that standard too "rigid" and "artificial."

Observing that the reality of modern securities markets is such that face-to-face transactions are rare, Justice Blackmun noted that requiring a showing of actual reliance would effectively prevent plaintiffs from ever proceeding as a class action.

Blackmun further noted that both Congress's intent and recent empirical studies reflect the idea that open markets incorporate all material information into share price.