Gun-Jumping

Understanding Gun-Jumping

Gun-jumping flouts the rule that investors should make decisions based on the full disclosure available to the public in the prospectus, not on information disseminated by the company that has not been approved by the SEC. If a company is found guilty of jumping the gun, its IPO will be delayed.

In order to build market integrity, trust, and confidence, regulators and market advocates discourage the use of private and undisclosed information. In theory, all market participants should be on an equal footing and have equal access to information.

When certain classes of investors, notably those on the inside or in a position of privileged access to information, enjoy the benefits of jumping the gun, it erodes the public's trust in financial institutions. This lack of trust can damage economic growth.

Preventing Gun-Jumping

Many rules and regulations are in place to prohibit or discourage financial actors from jumping the gun, but the incentives can be enticing. Some of these rules may be explicit, such as laws against insider trading.

Others are more subtle, such as the implicit public relations blowback an individual or a company can experience for using private information for personal gain.

Jumping the Gun Legally

Nevertheless, there are a couple of methods of stock analysis that get as close to gun-jumping as it is possible without flouting the rules:

There is nothing wrong, for example, with calling wholesalers and retailers to see what brands are selling fastest or slowest. Or talking with people who work for a company to get a sense of how efficiently it is run and whether it seems flush with cash or ready to cut costs.

Importantly, the people who do such research are not obtaining information that no one else has access to. They are trying to get a competitive advantage by asking questions that are not answered in public documents.