Quiet Period

What Is a 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 is also known as a quiet period.

Understanding a Quiet Period

During quiet periods, 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, its 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 gather 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 and is for analysts employed by the offering’s managing underwriters and 25 days for analysts employed by other underwriters participating in the IPO. The quiet period also includes 15 days prior to or after the expiration, termination, or waiver of the IPO lockup period. 

Its purpose is to create a level playing field for all investors by ensuring that everyone has access to the same information at the same time. 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.

Note that the Jumpstart Our Business Startups (JOBS) Act created the category of emerging growth companies (EGCs) and the quiet period rules that apply to them. The JOBS Act did away with research period quiet periods for EGCs, allowing research analysts to publish reports after the initial earnings release even if it falls within 25 days of the IPO. The Act defines EGCs as companies with less than $1 billion in revenue in their most recent fiscal year.

The term quiet period has two references in business, one relating to an initial public offering (IPO) and one to the end of the business quarter for a corporation.

Quiet Period Violation Example

Debating the objectives of quiet periods and the SEC’s enforcement are commonplace in financial markets. When quiet periods are seen as having been violated and ultimately to have benefitted select parties, legal action is usually taken.

In a recent example, shareholders alleged impropriety regarding the quiet period surrounding Facebook's IPO in 2012, arguing that certain information that should have been kept quiet may have been shared selectively, unfairly benefitting certain parties. Facebook's IPO 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 analysts supposedly passed new and useful earnings estimates to large investors only.