What Is the Quiet Period on Wall Street?
Definition & Examples of the Quiet Period on Wall Street
The quiet period on Wall Street is the period of time before a company's IPO and after the company registers with the Securities and Exchange Commission (SEC). During this time, the company must not share any information that isn't already contained in its registration. The quiet period is intended to avoid inflating stock prices before an IPO or providing some investors access to insider information.
Learn more about how the quiet period works and which exceptions are allowed.
What Is the Quiet Period on Wall Street?
On Wall Street, the quiet period is the period of time during an initial public offering (IPO) when the company making the IPO must be silent about the business so as not to impact stock prices or artificially inflate the worth of the company.
The quiet period begins after the business and underwriters file the registration for their IPO and lasts until 40 days after the stock starts trading. During this time, the company must not issue any new information that is not already contained in the registration statement.
Disclosure of additional information would be a violation of the quiet period and could be considered insider information.
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. You will still be able to read important regulatory filings at the time of their release to develop a comprehensive picture of the companies in which you are considering investing.
Alternate definition: The quiet period can also refer to the four weeks before the close of the business quarter when a publicly-traded company files its quarterly earnings report.
During this time, 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.
In both cases, the term refers to a period of time when information sharing about a company is limited to reduce the chances that fraudulent activity or insider trading will occur.
Alternate names: waiting period, cooling-off period
How the Quiet Period on Wall Street Works
The quiet period on Wall Street was established by the Securities and Exchange Commission (SEC) to limit insider trading, level the playing field for all investors, and prevent companies from artificially inflating the value of their business through fraudulent marketing tactics.
Procedures for an IPO, and what information can and cannot be released to the public, were established by the The Securities Act of 1933, then modified in 2005.
In the initial IPO, a company must release a prospectus with information that is relevant to investors, including:
- Description of the security on offer
- Information about the company's business and properties
- Information about the company's management, including the board, founder, executives, etc.
- Financial statements certified by an independent accountant
The prospectus is then listed on the SEC website where any potential investors can access it.
The quiet period gives the SEC times to evaluate the company's documents and ensure that the information being presented to investors is accurate and reliable. By preventing the release of additional information, it also ensures that investors will all have the same information available to them.
To prevent some investors from having access to additional information, the company's communication with the public is limited during the quiet period. This includes written, verbal, and electronic communication and applies to company employees at all ranks, including:
- Executives and board members, including CEO and CFO
- Members of the management team
- Other employees
What Are the Penalties?
If the quiet period is violated, the SEC may impose penalties on the company, such as:
- Legal and financial liability of breaking securities laws
- Delaying the IPO while the SEC determines if inappropriate information has been shared
- Requiring that the company include securities law violations in their prospectus
Securities laws relating to the quiet period are frequently amended and updated to create a level playing field for investors, limit fraud, and allow smaller and newer businesses to continue growing.
The Securities Act of 1933
After the stock market crash of 1929, the federal government passed the Securities Act of 1933. This was intended to regulate the ways stocks were sold and ensure that trading, particularly during a public offering, was fair for all investors by:
- Requiring that investors have access to information about the finances and other important aspects of businesses being publicly traded
- Prohibit fraud and the misrepresentation of securities being sold
This law established the initial requirement that companies registering for an IPO had to release public information about their company that could be verified by the SEC before shares of that company could be traded.
Amendments in 2005
In 2005, the SEC voted to adopt several amendments that revised the "gun-jumping" provisions of the Securities Act. These changes were intended to allow more communication to reach investors before an IPO. These amendments included exceptions for certain:
- Research reports
- Communications made before filing the registration statement
- Regularly released factual business information not intended for use by investors
JOBS Act of 2012
The Jumpstart Our Business Startups (JOBS) Act of 2012 created a new category of companies known as Emerging Growth Companies (EGCs) and laid out new IPO rules for companies that fit this definition.
The JOBS Act stated that EGCs and their underwriters may communicate (verbally or in writing) with qualified institutional buyers (QIBs) to assess the level of interest in the IPO both before and during the quiet period. This provision is known as "Testing the Waters."
During this period, EGCs are still subject to the anti-fraud requirements of federal securities laws. The SEC may request copies of any materials or written statements used in testing-the-waters communications.
- The quiet period on Wall Street is the period of time before a company's IPO and after the company registers with the Securities and Exchange Commission (SEC).
- During this time, the company must not share any information that isn't already contained in its registration.
- The quiet period is intended to avoid inflating stock prices before an IPO or providing some investors access to insider information.
- The quiet period can also refer to the four weeks before the close of the business quarter when a publicly-traded company files its quarterly earnings report. During this time, company executives are forbidden to speak to the public about the business.
U.S. Securities and Exchange Commission. "Fast Answers: Registration Under the Securities Act of 1933." Accessed Aug. 27, 2020.
U.S. Securities and Exchange Commission. "The Laws That Govern the Securities Industry: Securities Act of 1933." Accessed Aug. 27, 2020.
U.S. Securities and Exchange Commission. "Fast Answers: Quiet Period." Accessed Aug. 27, 2020.
U.S. Securities and Exchange Commission. "The JOBS Act After One Year: A Review of the New IPO Playbook," Page 6. Accessed Aug. 27, 2020.