Amongst the many rules and considerations that surround investor relations disclosure and trading practices, blackout and quiet periods are very important policies to implement and understand.
Blackout periods are legally-mandated timeframes when any corporate insider is forbidden to trade in the company’s securities. These restrictions exist to help reduce the risk of insider trading by parties who have access to non-public information. Blackout periods can be broken down into two main categories:
- Quarterly blackout periods apply to all insiders and employees of a company during periods when financial statements are being prepared but have not yet been publicly disclosed. As a rule, these blackout periods begin the first day following the end of a quarter or whenever preliminary financial statements for the quarter are available. The blackout period ends two days after quarterly financial results have been publicly disclosed.
- Blackout periods may also be occasionally mandated due to special circumstances within a company that call for insiders to be precluded from trading in its securities.
A quiet period is an interval in time when corporate insiders need to limit their interaction with the public due to the insiders’ knowledge of material information. Typically, this applies to a period when management has knowledge regarding company news that has not been announced to the public. This can be broken down further into two general categories:
- IPOs and Financings. These quiet periods were established and are regulated by the SEC to prohibit analysts who are associated with the deal ( i.e. who work for the investment bankers on the deal) from writing research reports that could influence the stock price during a defined period of time.
- Quarterly Earnings and Material News. The period between the end of a financial quarter and the day that quarterly results are released to the public, as well as a period before material news about the company is going to be disclosed.
Quiet periods exist in order to avoid the potential of a company selectively disclosing – or appearing to disclose – non-public information. The intention of blackout periods is to prevent any corporate insiders from making comments – or even unintentional implications – that would cause investors to alter their investment positions before any information is disseminated to the public.
While the laws around quiet periods for IPOs and financings are clear-cut, rules around the quarterly quiet period can be a bit of a grey area, and – unlike for IPOs and financings – the SEC has not listed any specific regulations for it. Management and IR teams need to put policies into place during these periods of time during which investors will likely call to see how things are going or how the quarter looks, with the intention of getting some advance insights before the earnings release. To avoid being put into a compromised position, companies and management teams should implement specific policies for quarterly quiet periods. Things to consider:
- When should the quiet period start? There is no standard policy for when a quiet period should start. If management knows during month three of the quarter what the results look like, perhaps starting the quiet period earlier is more appropriate. Timing and knowledge of results is very specific to each company.
- What will be the policy regarding communications? For example, the company can decide not to participate in any calls or make any outgoing calls, or any other policy deemed appropriate. Completely shutting down all communication could be unfavorably looked upon by investors. Additionally, if the quiet period precedes a big news announcement, total silence may alert investors that something big is about to happen. The company needs to work within its comfort zone to strike a good balance of communication.
- Will the company attend conferences? Again, completely cutting off the company from all exposure can impact the daily operations and progress of the team. This should be considered when implementing policies regarding conferences and quiet periods, as conferences often occur during periods that are within the timeframe of many quiet periods. Companies have many options when it comes to attending conferences during quiet periods, including not attending at all, attending but not scheduling one-on-one meetings, or choosing to pre-release earnings so that they can be discussed openly.
There are no standard policies or rules about quarterly quiet periods for public companies to follow. Each company should choose a policy that is right for its specific operations and comfort level, as well as adhere to it on an ongoing basis.
Debbie Kaster, Managing Director