A blackout period in finance is when a company prohibits its insiders from trading in its securities or exercising stock options. This restriction applies to employees, directors, officers, and other insiders accessing the company's non-public information.
Blackout Period in More Detail
The most common reason for a blackout period is to prevent insider trading (i.e., buying or selling stock or securities based on material, non-public information that could affect the company’s stock price). Other reasons could include complying with laws and regulations, as there are specific rules related to insider trading that a company must follow.
Usually, companies have a blackout period during an acquisition, before or after quarterly earnings reports, and during an Initial Public Offering (IPO) to prevent crucial non-public knowledge from getting leaked. To understand a blackout period in a better way, consider this example. An employee has stock options but can neither exercise those options nor sell the stock during the blackout period. However, the blackout period is crucial to protect the company and its shareholders from potential insider trading violations.
