Blackout Period

What Is a Blackout Period?

A blackout period is a policy or rule setting a period interval during which certain activities are limited or denied. It is most commonly used to prevent company insiders from trading stock in light of insider knowledge.

Company retirement plans likewise may have a blackout period during which investors in the plan can't change their plan options.

Grasping Blackout Periods

Blackout periods might be imposed in certain contracts, policies, or activities. For instance, a media company might impose a blackout on all political advertising for the 24 hours before an election so one candidate can't hurl an allegation that can't be reality checked or discredited before the surveys open.

Nonetheless, the most common utilization of the blackout period limits financial transactions in light of insider information.

Blackouts in Retirement Plans

Periodic blackout periods are common in employee retirement plans. During the blackout period, employees who invest in the company retirement or investment plan can't make alterations to their plans, like changing the allocation of their money, and will be unable to make withdrawals.

The timeframe for a blackout isn't limited by law. In the event that the blackout is expected to last for over three days, a notice of it must be given to the employees. Notwithstanding, the blackout period can last for a really long time or even months.

A blackout period might be imposed on the grounds that a plan is being rebuilt or altered. It allows the fund managers an opportunity to perform essential maintenance on their funds, including accounting and periodic survey. The blackout period prevents employees from rolling out major improvements to their investment options in view of data that may before long be obsolete. Directors and executive officers are additionally prevented from purchasing or selling their own company securities during the blackout.

The Securities and Exchange Commission (SEC) causes the rules that to safeguard employees during blackout periods.

Blackouts in Stock Transactions

The primary purpose of blackout periods in publicly traded companies is to prevent insider trading. A few employees who work for publicly traded companies may be subject to blackout periods since they approach insider data about the company.

The SEC prohibits employees, even top company authorities, from trading in view of company data that has not yet been disclosed. That is the reason publicly traded companies could uphold blackout periods at whatever point insiders might approach material information about the company, like its financial performance.

For instance, a company might impose a blackout period each quarter for a certain number of days before the release of a earnings report. Different events that can trigger a blackout period incorporate mergers and acquisitions (M&A), the up and coming release of another product, or even the release of an initial public offering (IPO). In each case, insider information would give an unfair advantage to the employee.

Blackouts in the Financial Industry

Starting around 2003, analysts have been subject to a blackout period that preclude them from distributing research reports on companies taking part in IPOs before they start trading on the open market and for as long as 40 days later. In this case, the blackout rule is planned to prevent financial analysts from satisfying any undisclosed marketing job in the IPO.

Blackout Period Example

On the off chance that a company directing a pension fund is shifting from one fund manager to one more at an alternate bank, the cycle would cause a blackout period. The blackout would give the firm opportunity to make the progress starting with one fund manager then onto the next while limiting the impact on employees who rely upon their retirement contributions.

Features

• A blackout period is a transitory interval during which access to certain activities is limited or denied.
• A blackout period for an employee retirement plan briefly prevents participants from changing their plans.
• The primary purpose of blackout periods in publicly traded companies is to prevent insider trading.