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Tuesday, July 25, 2006

Quiet period prior to the IPO

One little feature of the US IPO market is the notion of a "quiet period" where the firm that is headed for IPO is supposed to not talk to the press. A recent famous episode involving the quiet episode had sprung up in the context of the Google IPO, where the founders gave an interview to Playboy days before the IPO, which is inconsistent with the requirements of the quiet period.

Mr. Damodaran, the SEBI chairman, recently talked about this, and Business Standard has an editorial on the subject.

The US notion of the quiet period covers 1-2 months prior to the IPO date. I think that a much longer quiet period would help. For this period, the firm should have a zero incidence of advertising, getting mentioned in press releases, giving press interviews, speaking with journalists, appearing on television, recruiting a PR agency, and having shareholding structures involving media companies.

Update: Jayanth Varma disagrees.


  1. I always wondered about quiet period before an IPO. It doesn't make any sense to me. If being quite is so important before an IPO in order to stop a CEO from boosting an IPO issue, why shouldn't the same rule apply to any public issues (post-IPO)?

    Markets should be able to handle any boosting by the company. People who don't do their homework when subscribing to an IPO may get burned (just like trading any stock).

    IPO with quite period is bigger gamble than CEO talking to press. And then CEO can always be punished, legally, if false information is provided, I would think.

  2. Once listing takes place, the secondary market is supposed to be a powerful source of an accurate and well trusted signal of value.

    In an ideal world, all participants in the IPO should be sophisticated players who merely get amused at the frantic media campaign of a company seeking to go IPO, and are very effective at forming their own accurate picture about the firm. But that's not the world that we live in. As long as there is asymmetric information between IPO buyers and IPO sellers, we do have a host of messy problems there. Quiet-period rules are part of the package deal where the regulator focuses on information and its dissemination.

    Even if a company is carefulto release no false information, the very media campaign seeks to falsify the stature of the company as perceived by the IPO investor. If there are 10 competing IPOs, should the one with the biggest PR budget be the one that gets the best valuation?

  3. The 'quiet period' refers to the 26 days AFTER the initial public offering, not BEFORE the sale of the shares. A quick search on yahoo, or google, will give any number of reference articles stating as much. It is meant to prevent the underwriter from commenting (ie: giving a high recommendation and target price) during the first initial era of the stock's trading, thereby preventing a huge run-up and, most likely, a huge downfall right after.

  4. As example:

    The period starting when an issuer hires an underwriter and ending 25 days after the security begins trading, during which the issuer cannot comment publicly on the offering due to SEC rules.

    Am I missing something?


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