In general, a blackout period is any period in which access to something is denied or an action is prohibited. In regard to finance, for example, a blackout period marks a time when investors are unable to alter their investment plans, such as retirement plans, or trade company stock. These periods typically occur when there is a change within a company that affects the way investment plans are handled, or before sensitive financial information is publicly released. In the United States (U.S.), for example, the U.S. Securities and Exchange Commission (SEC) has rules in place to prohibit insider trading during blackout periods. Outside of finance, a blackout period may also refer to a period of time in which a political party is unable to run advertisements.
Companies often schedule blackout periods on a regular basis, such as quarterly or semi-annually; these periods can last anywhere from three to 60 days. Scheduling is usually done to give employees fair notice of upcoming blackouts and sometimes to coincide with the release of financial earnings information. Prior to earnings reports being released, company insiders often have access to information not accessible to employees, potentially giving certain people an unfair advantage with stock or investment packages. Thus, blackout periods are scheduled alongside information release periods in order to help prevent insider trading.
As a general rule, insider trading is illegal within the investment world. Exchanges regulators around the world have rules and committees in place to help prevent insider trading. For example, the Securities and Exchange Surveillance Commission is the regulatory arm of the Japan Financial Services Agency (FSA) and is in charge of investigating misconduct. In the U.S., the 2002 Sarbanes-Oxley Act enacted new rules in response to the Enron scandal, in which Enron went bankrupt following years of corporate fraud perpetrated by its top executives. The act stipulates that a company give employees at least 30 days notice prior to a blackout period, or offer an explanation if notice is delayed. According to the act, if a company fails to honor these rules, they may be fined $100 per participant for every day of a blackout period. Although the regulations don't exactly address what occurred within Enron, the spirit of the legislation is to protect employees from corporate investment fraud.
There are also blackout periods in the U.S. for people receiving benefits from Social Security. These are periods where no benefits are received. These periods can last up to several years. For example, a surviving spouse with children receiving Social Security survivor benefits may only be eligible to receive benefits until the youngest child turns 16. Thereafter, a blackout period may ensue up to the age of 60, when benefits resume.