What Is the Quiet Period on Wall Street?
A Look Into the Revised "Gun-Jumping" Provisions
During an initial public offering (IPO), the quiet period is the timeframe where certain restrictions are placed on business insiders. During the four weeks before the close of the business quarter—known as the quiet period—company executives are forbidden to speak to the public about the business. The prohibition avoids giving analysts, journalists, certain registered investment advisors, private investors, and portfolio managers an unfair advantage. The disclosure of this information and details would amount to insider information.
Adoption of the Quiet Period
According to the official Securities and Exchange Commission (SEC) documents,
On June 29, 2005, the Commission voted to adopt modifications to the registration, communications, and offering processes under the Securities Act of 1933. Among many other provisions, the rules update and liberalize permitted offering activity and communications to allow more information to reach investors by revising the "gun-jumping" provisions under the Securities Act.
The cumulative effects of these rules are as follows:
- Well-known seasoned issuers are permitted to engage at any time in oral and written communications, including use at any time of a new type of written communication called a "free writing prospectus," subject to enumerated conditions (including, in some cases, filing with the Commission).
- All reporting issuers are, at any time, permitted to continue to publish regularly released factual business information and forward-looking information.
- Non-reporting issuers are, at any time, permitted to continue to publish factual business information that is regularly released and intended for use by persons other than in their capacity as investors or potential investors.
- Communications by issuers more than 30 days before filing a registration statement will be permitted so long as they do not reference a securities offering that is the subject of a registration statement.
- All issuers and other offering participants will be permitted to use a free writing prospectus after the filing of the registration statement, subject to enumerated conditions (including, in some cases, filing with the Commission). Offering participants, other than the issuer, will be liable for a free writing prospectus only if they use, refer to, or participate in the planning and use of the free writing prospectus by another offering participant who uses it. Issuers will have liability for any issuer information contained in any other offering participant's free writing prospectus as well as any free writing prospectus they prepare, use, or refer to.
- The exclusions from the definition of the prospectus are expanded to allow a broader category of routine communications regarding issuers, offerings, and procedural matters, such as communications about the schedule for an offering or about account-opening procedures.
- The exemptions for research reports are expanded. A number of these new rules include conditions of eligibility. Most of the rules, for example, are not available to blank check companies, penny stock issuers, or shell companies.
If you are a regular investor who doesn't have a lot of contact with Wall Street or company management, it's unlikely you'll be affected by the quiet period. Instead, you'll simply read important regulatory filings at the time of their release such as the 10-K, proxy statement, and quarterly earnings calls, along with the firm's annual report and Scuttlebutt, to develop a comprehensive picture of the quality of the enterprise in which you are considering acquiring equity.
What You Can Do During a Quiet Period
- Learn the basic ideas, principles, and mechanics of the stock market.
- Gain an understanding of how successful value investors buy and sell stocks.
- Learn to read and evaluate a company's balance sheet.
- Learn to read and evaluate a company's income statement.