What Is a Quiet Period?
Let me tell you directly: before a company's initial public offering (IPO), the quiet period is an embargo on promotional publicity that the U.S. Securities and Exchange Commission (SEC) mandates. This means the management teams or their marketing agents can't make forecasts or express opinions about the company's value. For publicly-traded stocks, you'll also hear about the four weeks before the close of a business quarter as a quiet period.
Key Takeaways
Understand this: a quiet period is a specific time frame where a company's management and marketing teams are barred from sharing opinions or extra information about the firm. The goal here is to maintain objectivity and avoid any hint of providing insider information to select investors. For an IPO, it runs from when the company files registration paperwork with U.S. regulators up to 40 days after the stock begins trading. For publicly-traded companies, it's those four weeks before the business quarter ends. Also, the JOBS Act introduced emerging growth companies, eliminating certain quiet periods for them, like the 25-day research quiet period.
Understanding a Quiet Period
During these quiet periods, corporate insiders are strictly forbidden from speaking to the public about their business. This is to prevent giving an unfair edge to certain analysts, journalists, investors, or portfolio managers—essentially avoiding the appearance of insider information, whether it's real or just perceived.
The whole purpose is to level the playing field for all investors by making sure everyone gets the same information at the same time. It's not unusual for the SEC to delay an IPO if someone violates the quiet period; people involved take it seriously because there's a lot of money at stake.
Quiet Period Process
After a company files registration for new securities like stocks or bonds with the SEC, the management team, investment bankers, and lawyers hit the roadshow. They give presentations where potential institutional investors ask questions to build their research. Remember, the team can't offer any new info not already in the registration statement, but they can facilitate some informational gathering.
The quiet period kicks in when the registration statement becomes effective and lasts 40 days after trading starts—for analysts at the managing underwriters—and 25 days for those at other participating underwriters. It also covers 15 days before or after the IPO lockup period ends, terminates, or is waived.
Emerging Growth Companies (EGCs)
Pay attention to this: the Jumpstart Our Business Startups (JOBS) Act created the category of emerging growth companies (EGCs), and it changes the quiet period rules for them. Specifically, it eliminated the research quiet periods for EGCs, so analysts can publish reports right after the initial earnings release, even if it's within 25 days of the IPO. EGCs are defined as companies with less than $1 billion in revenue from their most recent fiscal year.
Important Note
Keep in mind that the term quiet period has two main uses in business: one tied to an IPO and another to the end of a corporation's business quarter.
Examples of a Quiet Period Violation
Debates about the goals of quiet periods and how the SEC enforces them are common in financial markets. When violations are spotted and they seem to have given an unfair benefit to certain parties, legal action typically follows.
Take the 2012 example with Facebook (now Meta): shareholders claimed there was impropriety during the IPO quiet period, saying information that should have stayed quiet was shared selectively, benefiting some unfairly. This led to over a dozen lawsuits accusing the company and its underwriters of hiding weakened growth forecasts before the listing. Small investors felt disadvantaged because underwriters' analysts allegedly passed new earnings estimates only to big investors.
More recently, in 2019, WeWork faced SEC scrutiny for possibly violating quiet period rules during its IPO attempt. In their prospectus, they admitted that then-CEO Adam Neumann gave sensitive interviews to Axios and Business Insider during the quiet period. Ultimately, WeWork scrapped the IPO in September 2019 due to investor concerns over mounting losses, which also forced Neumann to resign.
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