What Is a Blackout Period in Finance? Rules and Examples

What Is a Blackout Period?

A blackout period in financial markets is a period of time when certain people—either executives, employees, or both—are prohibited from buying or selling shares in their company or making changes to their pension plan investments. With company stock, a blackout period usually comes before earnings announcements. For pensions, it comes at a time when major changes are being made.

Key Takeaways

  • A blackout period in financial markets is when certain company employees are prohibited from buying or selling company shares.
  • Most companies voluntarily impose a blackout period on employees who might have insider information ahead of earnings releases.
  • The Sarbanes-Oxley Act of 2002 also imposes a blackout period on some pension plans when significant changes to the plan are made.
  • Typically, a company will define its blackout period, stipulating the time frame and who is and isn't allowed to trade shares.
  • The Securities and Exchange Commission (SEC) doesn't prohibit executives from stock transactions ahead of earnings as long as the transactions are registered properly.

What Are the Rules on Stock Trades?

The Securities and Exchange Commission (SEC) doesn't actually prohibit executives from buying or selling stock ahead of earnings announcements, so long as the company's legally required disclosures are up to date.

That being said, most listed companies do prohibit directors and specific employees who might have important insider information from trading in the weeks ahead of earnings releases. They do this to avoid any possible suspicion that the employees might use that information to their benefit ahead of its public release, which would violate SEC rules on insider trading.

Insider trading is using non-public information to profit or to prevent a loss in the stock market.

Pension Plans and Blackout Periods

Pension plan blackout periods are imposed when plan participants are restricted from making changes to their investment allocation. This is generally the case when the plan makes significant changes. This could include changes in management personnel, a corporate merger or acquisitions, implementation of alternative investments, or even a change in record-keepers.

Insider trading is a criminal activity that comes with a prison sentence and fines.

Under the Sarbanes-Oxley Act of 2002, it is illegal for any director or executive officer of an issuer of any equity security (unless the security is exempt) from buying, selling, or otherwise acquiring or transferring securities during a pension plan blackout period, if they acquired the security in connection with their employment. That includes securities not held within the pension plan itself.

These rules are also intended to prevent insider trading that could otherwise occur during the period when changes are being made.

Stock Analysts and Blackout Periods

Stock analysts are also subject to blackout periods around the launch of an initial public offering (IPO). Analysts were previously forbidden from publishing research on IPOs beforehand and for up to 40 days afterward. But those rules were loosened in 2015.

Now only analysts with firms that were involved as an underwriter or dealer are prohibited from publishing research or making public appearances in relation to an IPO, and for only 10 days after the offering is completed.

Can I Transfer Stock During a Blackout Period?

A blackout period prevents the buying, selling, or transferring of any security, whether directly or indirectly. This specifically applies to your position as either a director or executive officer.

Do Blackout Periods Apply to Family Members?

Typically, this is at the discretion of the company's blackout period's rules. Quite often, blackout periods apply to family members once a blackout period has been announced by a company. Neither you nor your family members are allowed to trade in the company's shares until the blackout period is over.

Can Insiders Sell Shares Before Earnings?

Yes, insiders can sell shares before earnings as long as the sale is done legally through the proper process and is registered with the Securities and Exchange Commission (SEC) and done as advanced filings.

The Bottom Line

Blackout periods refer to a specific time frame when certain individuals, usually executives or employees of a company, are prevented from buying or selling shares in their company. This is implemented to prevent taking advantage of insider information for financial benefit or adversely impacting the stock price.

Article Sources
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  1. Cornell Law School. "17 CFR 245.101 - Prohibition of Insider Trading During Pension Fund Blackout Periods."

  2. Harvard Law School Forum on Corporate Governance. "New FINRA Equity and Debt Research Rules."

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