What Is a Quiet Period?
Before a company’s initial public offering (IPO), the quiet period is an embargo on promotional publicity mandated by the U.S. Securities and Exchange Commission (SEC). The quiet period prohibits management teams or their marketing agents from making forecasts or expressing any opinions about the value of their company. For publicly-traded stocks, the four weeks before the close of a business quarter is also known as a quiet period.
- A quiet period is a set amount of time when a company's management and marketing teams cannot share opinions or additional information about the firm.
- The purpose of the quiet period is to preserve objectivity and avoid the appearance of a company providing insider information to select investors.
- With an IPO, the quiet period stretches from when a company files registration paperwork with U.S. regulators through the 40 days after the stock starts trading.
- With publicly-traded companies, the quiet period refers to the four weeks before the end of the business quarter.
- The JOBS Act created a class of companies—emerging growth companies—doing away with specific quiet periods, notably the 25-day research quiet period.
Understanding a Quiet Period
During quiet periods, corporate insiders are forbidden to speak to the public about their business to avoid tipping certain analysts, journalists, investors, and portfolio managers to an unfair advantage—often to avoid the appearance of insider information, whether real or perceived.
The quiet period's purpose is to create a level playing field for all investors by ensuring that everyone has access to the same information at the same time. It’s not uncommon for the SEC to delay an IPO if a quiet period has been violated; interested parties take the process seriously as there’s a lot of money on the line.
Quiet Period Process
After a company files registration for newly issued securities (stocks and bonds) with the SEC, its management team, investment bankers, and lawyers go on a roadshow. During a series of presentations, potential institutional investors will ask questions about the company to gather investment research. Management teams must not offer any new information that is not already contained in the registration statement but can provide some level of informational gathering.
The quiet period begins when the registration statement is made effective and lasts for 40 days after the stock starts trading and is for analysts employed by the offering’s managing underwriters and 25 days for analysts employed by other underwriters participating in the IPO. The quiet period also includes 15 days before or after the expiration, termination, or waiver of the IPO lockup period.
Emerging Growth Companies (EGCs)
Note that the Jumpstart Our Business Startups (JOBS) Act created the category of emerging growth companies (EGCs) and the quiet period rules that apply to them. The JOBS Act did away with research period quiet periods for EGCs, allowing research analysts to publish reports after the initial earnings release even if it falls within 25 days of the IPO. The Act defines EGCs as companies with less than $1 billion in revenue in their most recent fiscal year.
The term quiet period has two references in business, one relating to an initial public offering (IPO) and one to the end of the business quarter for a corporation.
Examples of a Quiet Period Violation
Debating the objectives of quiet periods and the SEC's enforcement are commonplace in financial markets. When quiet periods are seen as having been violated and ultimately to have benefitted select parties, legal action is usually taken.
In a 2012 example, shareholders alleged impropriety regarding the quiet period surrounding the IPO of Facebook (now Meta), arguing that certain information that should have been kept quiet may have been shared selectively, unfairly benefitting certain parties.
Facebook's IPO prompted more than a dozen shareholder lawsuits accusing the social networking company and its underwriters of obscuring its weakened growth forecasts ahead of the listing. Small investors complained they were at an informational disadvantage after underwriters' research analysts supposedly passed new and useful earnings estimates to large investors only.
In a more recent case in 2019, WeWork (a commercial real estate company that provides shared workspaces for technology startups and other services for enterprises) also faced scrutiny of the SEC for a potential violation of the quiet period rules during its initial public offering. In the prospectus filed with the SEC providing details about the investment offering to the public, WeWork admitted that then-CEO Adam Neumann gave sensitive interviews to Axios and Business Insider, taking place during the quiet period. WeWork abandoned its IPO in September 2019 after investors showed concerns about its increasing losses, forcing Adam Neumann to resign.