The SEC looking at Facebook’s "quiet period" before their stock market listing
August 29th, 2012 - 09:20 am ET by C. D.
Facebook’s active stock market listing has led to the American regulator to study the validity of the "quiet period" before stock market listing.
Just before their stock market listing, companies have to respect a silent period and not release any sensitive information (related to their earnings, for example) so that investors all have the same information available to them.
The American stock market regulator ensures that they silent period is respected, but there are some issues. In the United States, the SEC (Securities & Exchange Commission) pinged the grouped purchases site Groupon after their director, answering criticisms about their economic model, provided financial information just before their IPO.
Facebook’s listing represents another possible violation of this "quiet period". Due to their size, the listing was unusual, with it leading to a meltdown of the Nasdaq – with the market unable to manage the massive number of orders being passed for Facebook once they were launched on the market.
Those in the know… and the rest This wasn’t the only problem with Facebook’s listing. From the moment they were listed, certain investors were critical of the fact that certain participants received verbal information (notable about weaker growth in the future) a few hours before the company listed which then allowed these people to consequently react as soon as Facebook was public.
Despite public criticism about this, the investment banks who backed the IPO have maintained that they did everything by the rules. This hasn’t prevented the SEC from reminding everyone of the rules relating to the quiet period before stock market listings.
The SEC wants to look at how this can be policed better in the future at a time when communication technologies are changing daily. Modern communication methods, like social networks, weren’t widely used when the existing laws were written in 2005, with news now capable of spreading quickly – something which creates a problem when everyone is supposed to be equal for stock market listings.