A:

A blackout period is a period of at least three consecutive business days but not more than 60 days during which the majority of employees at a particular company are not allowed to make alterations to their retirement or investment plans. A blackout period usually occurs when major changes are being made to a plan. For example, the process of replacing a plan's fund manager may require a blackout period to allow for necessary restructuring to take place.

The Securities and Exchange Commission (SEC) has set rules to ensure that employees are not at a disadvantage during a blackout period. The SEC prohibits any director or executive officer of an issuer of any equity security from, purchasing, selling or otherwise acquiring or transferring securities during a pension plan blackout period. In addition, the SEC has established rules requiring the issuer to notify the director or executive officer when imposing a blackout period.

The purpose of these rules is to prevent insider trading that could otherwise occur during the period when changes are being made. However, the financial security of employees who are unable to make changes during a blackout period may be jeopardized. Therefore, SEC regulations stipulate that employees must receive advance warning about the occurrence of blackout periods.

(For more on this topic, read Retirement Planning.)

This question was answered by Bob Schneider.

RELATED FAQS

  1. Why should investors research the C-suite executives of a company?

    Learn how C-suite officers affect shareholders; discover how the CEO impacts financial performance and why governance is ...
  2. Can a business ever be too small to issue commercial paper?

    See why market forces regulate the size of companies that issue commercial paper, even though there are no official regulations ...
  3. What is the difference between a direct and an indirect distribution channel?

    Learn about the primary differences between direct and indirect distribution channels, and under what circumstances a company ...
  4. How does an underwriter syndicate work together on an initial public offering (IPO)?

    Learn how underwriting syndicates work together when helping a company undertake an initial public offering, and learn about ...
RELATED TERMS
  1. Mandatory Binding Arbitration

    A contract provision that requires the parties to resolve contract ...
  2. Mail Or Telephone Order Merchandise Rule

    A regulation that controls businesses that sell products over ...
  3. Value Of Risk (VOR)

    The financial benefit that a risk-taking activity will bring ...
  4. Business Judgment Rule

    A legal principle which grants directors, officers, and agents ...
  5. Freelancer

    A freelancer is an individual who earns money on a per-job or ...
  6. Contra Proferentem Rule

    A rule in contract law which states that any clause considered ...

You May Also Like

Related Articles
  1. Investing

    Who's Banning Facebook Now?

  2. Investing

    Why Facebook is Banned in China

  3. Investing News

    A New Corporate Governance Initiative ...

  4. Investing

    Is It The End Of The Mexican Telecom ...

  5. Stock Analysis

    Will American Airlines Fall Back To ...

Trading Center