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Definition: Blackout Period
Blackout period is a term which generally refers to a period during which something is denied or prohibited. In the field of finance, it refers to the time period during which the managers or the top executives of the company are not allowed to buy or sell securities because during that period they are the ones who are in possession of information which are not known to the outside public. It is done to prevent insider trading. It occurs before the earnings or the quarter or annual results of the company are published or are in the process of going public. Securities and Exchange Commission (SEC) of United States prohibits the top executives as well as employees from trading of company’s stock. It is a period of not more than 60 business days but at least it should be more than three consecutive business days.
In a firm blackout period may also be defined as the period during which the employees cannot alter their investment plans. This happens when the company switches from one pension fund manager to another pension fund manager or to some other bank. SEC has laid down proper guidelines to protect the interest of the employees during the blackout period and has also made mandatory that all the employees of the organization are informed beforehand. However, companies can also announce blackout periods in case of occurrence of certain events that cannot be made public immediately. For Example: A firm may enforce a blackout period during Merger and Acquisition or during restructuring of the organization or during a major technological change or shift in the organization.
However, offering of the securities can be completed during blackout period provided:
• Management has a good track record of predicting company’s performance in quarter and annual reports
• Management has adequate amount of information available for the current quarter
• Expectations of the management are in line with market expectation