A quiet period, in the financial world, refers to a kind of waiting period for an initial public offering. The initial public offering is the process that helps a company or business to “go public.” It is the first offer of shares on the common stock market, where investors can buy into a company, and help it experience future growth while profiting from that growth.
A quiet period is also called a cooling off period. It refers to a period of time when the company is barred from revealing some kinds of information about a stock. The Securities and Exchange Commission is the agency tasked with regulating U.S. stock offerings and other parts of the American markets. It creates and enforces the quiet period and other rules for the U.S. markets.
The quiet period is designed to allow those researching the company to engage in “due diligence,” or finding out about the underlying factors that will affect price. During this time, individuals involved in the company can circulate their initial prospectus or stock report, but they are not allowed to offer more information to the public. According to industry experts, however, executives often make limited efforts to promote an IPO during the quiet period.
As one of many rules set by the U.S. Securities and Exchange Commission, the quiet period is supposed to work against efforts at price manipulation. Modern financial professionals have seen how easy it can be to destroy a stock with some kinds of market trading including extreme short selling. Even rumors about a company can radically drive down stock prices, as seen in some modern financial events.
In order to curb volatility associated with price confusion or manipulation, the SEC has set up the quiet period, as well as other kinds of common rules for an IPO. An initial prospectus or report may be labeled a “red herring” to show that the final details have not yet been set for the stock price or other aspects of the offering. A lock-in period ensures that investors will not dump their stocks before the IPO process is complete. This kind of regulation over the IPO helps to encourage successful stock offerings, where different kinds of volatile trading will be allowed after the IPO has been finalized, and a stable investment system has been set up for that offering.