What Is a Quiet Period? Overview for IPOs and Public Companies
A “quiet period” is a set time that prohibits a company from sharing nonpublic information. This is intended to reduce the risk of fraud such as insider trading.
Quiet period regulations apply to companies during the IPO process. These rules also apply to public companies four weeks before their quarterly earnings reports.
IPO Quiet Periods
A quiet period is a time before a company issues public shares for the first time. The company and the underwriters of the IPO file a registration statement (S-1) with the Securities and Exchange Commission (SEC).
After the documents are filed, the SEC reviews them. The SEC verifies that the information is accurate. When the SEC completes the review process, the documents become available to the public. And you can find this information on the SEC website.
A company cannot share private information with the public during a quiet period. Information that’s not contained in the company’s S-1 filing is nonpublic. It’s also considered material information if it could influence the IPO or the stock price.
Companies restrict communication to the public during a quiet period. This is to make sure workers don’t disclose private information. The quiet period can limit all forms of written and verbal communication. This applies to employees of the company at every rank. Many firms discourage press interviews and conferences.
The quiet period often lasts anywhere from 10 to 40 days after the company goes public. This lets the stock to trade without being influenced by new information, allowing it to “settle down” in the market.
A quiet period is important because IPO pricing can be unstable in the first few weeks. Once a stock has traded for a while, it often settles into a trading range.
Quiet Periods for Public Companies
For a company that has already gone public, its quiet period is the four weeks before the end of a business quarter. A public company’s quiet period takes place before the company files its quarterly earnings report. The firm cannot speak to the public about undisclosed business during this time. This is because earnings reports can have a big impact on a stock’s price.
Analyst’s earnings projections can make a stock rise or fall. Firms that exceed their expectations usually perform well. And firms that don’t outperform estimates tend to underperform.
What Is Standard Practice for a Quiet Period?
A company’s disclosure policy depends on several factors. Companies can decide how much they want to communicate during a quiet period. Some are comfortable talking to the public and avoiding off-limit topics.
A firm can also choose to go silent during the quiet period. The level of communication with the public during a quiet period is up to the company. It can decide how much information it wants to provide.
What Are the Penalties for Violating a Quiet Period?
The SEC may impose penalties on a company for violating a quiet period. Violations of the SEC’s restrictions are often called “gun-jumping.” They include…
- Delaying the public offering date
- Liability for violating securities laws
- Requiring the company to include securities law violations in their prospectus
- A “cooling-off period,” or an extension of the quiet period.
Shareholders can also take action if a company doesn’t comply with a quiet period. They can bring a lawsuit against the company within one year of its IPO. If the lawsuit is successful, the issuer may have to rescind the contract and repurchase shares at the original price.
Companies must be aware of the rules of the quiet period. Steps should be taken to ensure that employees are aware of the restrictions. It is important to educate and comply during a quiet period to avoid violation.
If you’re interested in learning more about the IPO process, check out this step-by-step guide to going public. Also, feel free to sign up for the free Liberty Through Wealth e-letter. It’s packed with investing tips and tricks.