The quiet period on Wall Street is the block 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 in the papers and forms it has filed with the SEC. The quiet period is meant to avoid inflating stock prices before an IPO. It also prevents investors from getting inside information that they aren't supposed to have.
Learn more about how the quiet period works and what is allowed during this time.
What Is the Quiet Period on Wall Street?
On Wall Street, the quiet period is a time during an initial public offering (IPO). During this time, the company making the IPO must be silent about the business. The goal is to avoid having an impact on stock prices or falsely inflating the worth of the company.
The quiet period begins after the business and underwriters file to register for their IPO. It lasts until 40 days after the stock starts trading.
During this time, the company must not release any new info about the business. Those who are thinking about investing should only have access to what is in the registration forms.
Releasing new information would be against the rules of the quiet period. Any info shared during this time could be seen as insider information.
If you are a normal investor who doesn't have a lot of contact with Wall Street or company management, you most likely won't feel the impact of the quiet period. You will still be able to read regulatory filings at the time of their release. These reports will give you a full picture of the stocks you are thinking about buying.
Alternate definition: The quiet period can also refer to the four weeks before the close of the business quarter when a company that is traded publicly files its quarterly earnings report.
During this time, company executives are not allowed to speak to the public about the business. The rule 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 sharing new info about a company is limited. Both types of quiet periods are designed to reduce the chances that fraud or insider trading will happen.
Alternate names: waiting period, cooling-off period
How the Quiet Period on Wall Street Works
The quiet period on Wall Street was started by the Securities and Exchange Commission (SEC). It is meant to to limit insider trading, level the playing field for all investors, and prevent companies from falsely raising the value of their stock through fraudulent marketing tactics.
Steps for an IPO, and what information can and cannot be released to the public, were put in place by The Securities Act of 1933. These rules received an update in 2005.
For an IPO, a company must release a prospectus with information that will matter to investors who are thinking about buying its stock. This report will describe:
- The security on offer
- The company's business and properties
- The company's management, such as the board, founder, executives, etc.
- The financial state of the company, with all statements checked by an independent accountant
The prospectus is then listed on the SEC website. You can access it there if you are thinking about investing in the stock.
The quiet period gives the SEC time to look through the company's forms and make sure that what is there is correct and truthful. By stopping the release of new statements, it also ensures that all investors will have access to the same information.
To prevent some investors from getting new information, the company's communication with the public is limited during the quiet period. This includes written, verbal, and electronic communication. This rule applies to all ranks within the company, including:
- Executives and board members, including CEO and CFO
- Members of the management team
- Other workers
What Are the Penalties?
If the quiet period is broken, the SEC may impose penalties on the company. These could be:
- Legal and financial liability for breaking securities laws
- Stopping the IPO while the SEC decides if inappropriate information has been shared
- Having the company note in the prospectus that securities laws were broken
Securities laws about the quiet period are often changed and updated. All these changes are meant to create a level playing field for investors and limit fraud. They also allow smaller and newer businesses to keep growing.
The Securities Act of 1933
After the stock market crash of 1929, the federal government passed the Securities Act of 1933. This was meant to regulate the ways stocks were sold. Its goal was to ensure that trading, particularly during a public offering, was fair for all investors by:
- Requiring that investors have access to info about the finances and other major parts of businesses being publicly traded
- Prohibit fraud
- Stop false statements about any securities being sold
This law started the rule that companies having an IPO had to release public information about their company. These documents would then be checked by the SEC before shares of that company could be traded.
Amendments in 2005
In 2005, the SEC voted to revise the "gun-jumping" rules of the Securities Act. These changes were meant to allow more communication to reach investors before an IPO. They made exceptions for certain:
- Research reports
- Communications made before filing the registration statement
- Regularly released business information not meant 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). It also laid out new IPO rules for these EGCs.
The JOBS Act stated that EGCs and their underwriters could communicate (verbally or in writing) with qualified institutional buyers (QIBs) to assess the level of interest in the IPO. This could happen both before and during the quiet period. This new rule is known as "Testing the Waters."
During this period, EGCs are still subject to the anti-fraud rules of federal securities laws. The SEC may request copies of any materials or written statements used for testing the waters.
- The quiet period on Wall Street is the 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 contained in its registration.
- The quiet period is meant to avoid raising stock prices before an IPO or giving some investors access to insider info.
- The quiet period can also refer to the four weeks before the close of the business quarter when company executives are not allowed to speak to the public about the business.