The insider trading policies of almost all public companies contain closely monitored “black out” periods that prohibit trades by designated classes of employees during certain periods in the company’s SEC reporting cycle. Less prevalent, and less rigidly enforced, are “quiet period” policies, which generally forbid management from discussing financial results, business outlook or other material matters with analysts and investors.
Quiet periods are not required by any SEC rule, though they are influenced by the prohibitions of Regulation FD. In fact, many companies that have adopted quiet period policies include them as part of their Regulation FD or other external communication policies. Other companies observe quiet periods without having reduced their policies to writing. To avoid confusion, enhance corporate governance and ensure effective disclosure controls and procedures, companies should revisit their quiet period policies from time to time.
Anecdotal evidence suggests that most companies match their quiet periods to their blackout periods, which generally seems like a good idea. However, it is possible to be quiet too long, meaning that it may, in some circumstances, do more harm than good to shut out all communications with analysts and investors for vast swaths of the year. While it makes sense to black out insiders from trading in the company’s securities for extended periods of time coinciding with quarter ends and earnings releases, a company may feel comfortable letting a limited subset of senior management (for example, the CEO, CFO and Head of IR) who are well-trained on proper communication parameters (including Regulation FD) speak to market participants during certain portions of a blackout period. With Regulation FD having been around for more than fifteen years, market professionals and institutional investors understand the limitations on what management can say. The days of analysts and investors pushing for information they shouldn’t have and then being miffed when they don’t get it are mostly behind us.
- Determine whether your company has a quiet period policy (written or unwritten) and the terms of that policy. If not, it’s time to adopt one. If your policy is unwritten, it’s time to get it down on paper, possibly as a subsection of the company’s disclosure policy. (If you don’t have a disclosure policy, you should have one of those, too.)
- Consider the length of the quiet period. If it is the same as or longer than your blackout period, it may be a candidate for shortening, but only after thorough consideration of the nature of your existing market communications and market expectations. The company’s complexity and financial sophistication will also be factors in making this decision, and it is useful to know what your peer companies are doing.
- Be sure that only a limited number of designated persons are permitted to speak to the market and that those persons are well-trained on Regulation FD and other external communication parameters. As a general rule, never say anything that is not already in the public domain.
- Put the dates of your quiet period on the company’s fiscal calendar and be sure that affected personnel are well aware of those dates.
- Coordinate with the IR department to be sure all investor conference and trade show dates are checked against quiet period limitations. You don’t want to make promises that later cannot be kept.
- Consider whether certain members of management will have authority to waive compliance with the quiet period if special circumstances dictate. Although black and white communication restrictions are easier to police and enforce, limited discretion may be useful in some circumstances.