What Is a Quiet Period? Definition, Purpose, and Violations

What Is a Quiet Period?

Before a company’s initial public offering (IPO), the quiet period is a period of time when management teams or their marketing agents are prohibited from making forecasts or expressing any opinions about the value of their company. Mandated by the U.S. Securities and Exchange Commission (SEC), there are strict consequences for violations, including legal actions. There is an exception for emerging growth companies, as analysts are allowed to publish reports after the initial earnings release within 25 days of the IPO. For publicly-traded stocks, the four weeks before a business quarter ends is also called a quiet period.

The Role and Importance of 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 ensures all investors have equal access to the same information at the same time. The SEC often delays an IPO if the quiet period is violated, as there's a lot of money at stake.

Navigating the Quiet Period During an IPO

After filing registration for new securities with the SEC, the company's team goes on a roadshow. Potential investors ask questions during presentations 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. 

How Quiet Period Rules Affect Emerging Growth Companies

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.

Notable Violations of Quiet Period Rules

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 led to lawsuits accusing the company and underwriters of hiding weak growth forecasts. 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.