Quiet Period

Prior to a company’s Initial Public Offering (IPO), the quiet period is an SEC-mandated embargo on promotional publicity. This prohibits management teams or their marketing agents from making forecasts or expressing any opinions about the value of their company.

For publicly traded stocks, the four weeks before the close of a business quarter are also known as a quiet period. Here again, corporate insiders are forbidden to speak to the public about their business to avoid tipping certain analysts, journalists, investors and portfolio managers to an unfair advantage – often to avoid the appearance of insider information, whether real or perceived.

After a company files registration for newly issued securities (stocks and bonds) with the SEC, their management team, investment bankers and lawyers go on a roadshow. During a series of presentations, potential institutional investors will ask questions about the company to rather investment research. Management teams must not offer any new information that is not already contained in the registration statement. But it still offers some level of informational gathering.

The quiet period begins when the registration statement is made effective and lasts for 40 days after the stock begins trading. Its purpose is to create a level playing field for all investors by ensuring everyone has access to the same information.

It’s not uncommon for the SEC to delay an IPO if a quiet period has been violated; interested parties take the process seriously as there’s a lot of money on the line.

Debating the objectives of quiet periods and the SEC’s enforcement are commonplace in financial markets. Particularly after well-known IPOs, such as Facebook in 2012 – which prompted more than a dozen shareholder lawsuits accusing the social networking company and its underwriters of obscuring its weakened growth forecasts ahead of the listing. Small investors complained they were at an informational disadvantage after underwriters’ research analyst supposedly passed new and useful earnings estimates to large investors only.