Wednesday, October 27, 2004

The end of the quiet period!

Shout, shout let it all out! Sorry about the cheesy Tears for Fears referencee, but the quiet period may be over for large firms! The SEC has requested comments on ending the quiet period. And to that I say HURRAY!

The so-called quiet period was the time when firms that were in the process of selling shares to the public could not communicate with the public. This led to many problems when managers spoke (either intentionally or not) to the public. Most recently the notorious Google Playboy interview.

But finally the SEC has come to its senses and wants to relax the quiet period restrictions:
From CNN/Moneyline:
Companies selling stock to the American public would be allowed to talk
much more freely about it, and even advertise, under a proposal given
preliminary approval Tuesday by federal regulators.

In an effort to overhaul rules from the 1930s, the Securities and
Exchange Commission voted 5-0 to propose largely eliminating the so-called
"quiet period" preceding stock offerings for very large companies.

and it gets even better!

Television advertising of offerings could follow, while media interviews with executives of companies selling stock would be clearly allowed under the proposal, officials said....Balancing these new freedoms would be strict rules about legal liability for major misstatements or omissions of important facts in interviews, ads or other communications outside the traditional SEC filing regime.

The old rules still apply to small firms, but this is a step in the right direction!

Currently, in many countries firms are allowed to advertise prior to the IPO and there is no quiet period. So there should be a large sample to study to see what impact this will have on raising new capital.

BTW it should be noted, that even in the US firms did try to find ways around the old rules. For instance, you were allowed to advertise for your firm's products. Thus, Chemmanur and Yan find firms increase advertising during this opposed quiet period. So, starting in 2006, a new research idea: does advertising NOT increase during increase as much during the IPO process.

FTR Bonus points to those of you who also recognized the irony in the title of this post. It seems that I am also talking about the recent period where I have sort of been out of contact. A brief illness, a busy schedule, family demands, and travel conspired to keep me off line for a while, but hopefully I will be more consistent with my postings and updates!

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