A quiet period is the period of time when company insiders are required to limit certain business-related communication with the public. During this time, communication is monitored and enforced by the US Securities and Exchange Commission (SEC). Quiet periods exist mainly to avoid selective disclosure of material non-public information and prevent an artificial increase in demand before companies issue securities. Quiet period guidelines apply to private companies throughout their IPO process and publicly traded companies during the weeks leading up to their quarterly earnings calls and when they are issuing securities.
Timeline of a Typical Quiet Period
For private companies issuing public shares for the first time (IPO), the quiet period begins once management and the underwriters reach an agreement and file a registration statement (S-1) with the SEC. Once the SEC completes their review process, the S-1 becomes available to the public, marking the beginning of the “waiting period.” The waiting period starts when the S-1 becomes publicly available and ends on the day the price is set for the issued securities. Once the pricing is complete, the company enters the final phase of the quiet period. The goal of this phase is to allow stock to trade without influence from new information. The length of this phase is determined by the underwriting banks and can last anywhere from 10–25 days.
For publicly traded companies, the quiet period refers to the time between the end of a financial quarter and the company announcing financial results. Public companies also enter into quiet periods during financings when securities (stock or bonds) are issued to the public. During a financing, the quiet period timeline mimics that of an IPO, while the quiet period at the end of each financial quarter varies from company to company. The formal quarter-end quiet period begins at the close of each financial quarter and extends until the company’s earnings call; but depending on the management team, this quiet period can also include the days leading up to the close of the quarter.
Quiet Period Guidelines
Quiet period guidelines for private companies issuing public shares for the first time and public companies prior to quarterly earnings announcements or financings can vary. These differences are discussed below.
Guidelines for IPOs
During the time the registration remains confidential at the SEC, any hint of an imminent IPO by the filing company or underwriter can be considered “gun-jumping.” Although this term is not formally defined, it includes any action taken by the company or underwriters that may improperly stimulate demand for the IPO. The most frequent action taken as a result of a gun-jumping violation is delaying the IPO timeline to allow for a “cooling off period.” In some cases, companies and underwriters receive harsh fines and sanctions. Historically, gun-jumping violations included communications such as formal investor meetings, press releases, and interviews, but in the age of the Internet, things such as social media posts, unusual website updates, and spontaneous increases in advertising can be considered gun-jumping.
During the waiting period when the IPO is public information, management teams should remain cautious and avoid giving interviews. This will prevent hyping up demand before pricing. In the final two weeks, the company will meet with potential investors on a roadshow but must be very careful to not disclose information that is not in the S-1. Similarly, in the post-pricing quiet period, conversations with investors are limited to contents in the S-1. Saying anything outside of what’s disclosed in the S-1 during this time will require an amended version to be filed. Sell-side analysts from the underwriting banks are also restricted from issuing research reports on the company during this time.
While violations are generally focused on company-issued communications, it is important to note that sharing third-party materials can also be considered a violation. This goes for sharing on company-related social media accounts and employees’ personal accounts.
Guidelines for Public Companies
Although the rules and guidelines for public companies are a little grayer, the goal remains the same for these quiet periods: avoid selective disclosure of material information. Determining a good time to begin your quarterly quiet period depends on when your finance and accounting departments have finalized or nearly finalized the quarterly results, and given management a good idea where business performance will land.
It is important to take your quiet period into consideration when planning non-deal roadshows or scheduling investor calls because management will be limited in the information they can share. Investor events are much more productive when hosted shortly after an earnings call because management has more leeway to answer investor questions.
Examples of Quiet Period Violations
- Salesforce.com, Inc. is a great example of why it is better to err on the side of caution instead of risking a SEC violation that could damage your company’s IPO prospect. In 2004, the SEC questioned Salesforce CEO’s participation in a high-profile New York Times article that was published less than two weeks prior to the company’s IPO pricing. As a result, Salesforce and the SEC agreed to a “cooling off” period following the CEO’s participation in the questionable interview. The explanation for the violation was that the article “presented statements about our company in isolation and did not disclose any of the related risks and uncertainties described in this prospectus.”
- Similar to the Salesforce example, Webvan entered into a mutual agreement with the SEC due to worries that executives violated the quiet period guidelines by interacting with the media during their IPO. The SEC was also concerned the company had been sharing information that was not included in the prospectus during its IPO roadshow.
Whether your company is preparing to go public or has recently completed an IPO, it is essential that the management team and employees fully understand the term “quiet period.” Due to the increased scrutiny companies are held to during an IPO, it is highly recommended that you consult with your IPO advisory firm and legal counsel regarding requests for interviews, quotes, meetings, as well as social media posts and press releases.
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Hunter Cabi, Analyst