UPDATED: March 2022
What Is a Blackout Period? – There are specific rules and restrictions imposed on public company executives and insiders when buying and selling company shares. That prevents them from illegally benefiting from insider information and gaining the upper hand over other investors in the stock market. Publicly traded companies may also choose to implement a blackout period during which company executives and employees will be restricted from buying or selling company shares.
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What Is a Blackout Period?
A blackout period it the time when a publicly traded company’s directors, officers, and certain employees (insiders) can’t trade the company’s stock. Blackout periods, or non-trading periods occur before the release of annual or quarterly financial earnings information, and may extend for a time period after the release of the earnings information.
Who Sets the Blackout Period?
Most Investors don’t know that it is the publicly traded company, not the SEC (Securities and Exchange Commission), that sets the blackout period. However, the SEC’s Rule 10b5‑1 of the SEC Act of 1934, creates exceptions, or basically a “safe harbor” in which the various officers, directors, and some employees of the business, by establishing a trading plan, may trade a company’s securities even during a blackout period, and even when they have inside knowledge of material nonpublic information. Because of the various exceptions, that is why it is so important to know what is a blackout period?
A trading plan might be an established employee stock ownership program that calls for a set number of shares of the company to be purchased each month. In general, a trading plan removes discretion for the sale or purchase of stock from the individual and creates an automatic program.
Most of the time, a blackout period is implemented before a quarterly earnings report or before earnings announcements. That ensures insiders who have access to nonpublic information can’t trade illegally in the stock market. The blackout period can be imposed on only the company’s top executives or on all company employees.
What is the Purpose of a Blackout Period?
The blackout period’s main purpose is to prevent illegal insider trading, so that people with access to nonpublic information in the company can’t use that information to profit or prevent loss in the stock market. Corporations aren’t legally obligated to impose blackout periods, but many corporations still choose to implement them to limit illegal trading activities.
Most companies choose to impose recurring blackout periods whenever they are about to release an earnings report. The blackout period would start from the last day of the financial quarter and last until two or three days after the company files their financial results. That ensures the public has enough time to study the financial results and then make investments decisions. In essence, Blackout periods level the playing field for investors and ensure that no illegal trading activity occurs.
What Are the Penalties of Trading During Blackout Periods?
The company can take strict action against any individual who is found guilty of trading during blackout periods. They could choose to let the employee or executive go and may even place a fine on them in many cases. Most companies have removed directors from their post and levied pay cuts for trading shares during a blackout period. Suppose you have access to nonpublic information and willingly choose to use it for your benefit. In that case, you can be subjected to criminal penalties, including a fine and even jail time.
Therefore, you must understand the rules surrounding blackout periods and refrain from trading within that period. Employees and executives who choose to ignore blackout periods and continue trading will only be creating more problems for themselves in the future. That is why all executives and employees must understand what is a blackout period so that they don’t become a victim of illegal insider trading.
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Buyback Analytics is a Top Tier Investing Platform to help investors find, analyze, and profit from investing opportunities not found through traditional investment tools. We specialize in this simple concept: Follow the trades of Insiders – CONSISTENTLY PROFITABLE Traders, Investors, and Institutions because THEY get Inside Information that YOU don’t:
LEGAL Insider Trading / Inside Traders (CEOs, CFOs, Corporation’s Accountants & Attorneys, Politicians, etc.)
Stock Buybacks (Share Repurchases) by Public Corporations (ie. Apple, Tesla, Netflix, Meta (Facebook), Microsoft, etc.)
Market Moving Institutions (Examples: Market Makers, Investment Banks, Stock Brokerages, Hedge Funds, etc.)
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