What Is a Blackout Period?

If an insider sells shares before a company reports bad news, that's a red flag.

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If you work for a company that's publicly traded, you could be subject to blackout periods during which you're not allowed trade the company's stock. You might have access to nonpublic information, with a potential for illegal insider trading. A blackout period is generally part of a company's internal policy. It's meant to prevent corporate insiders from unfairly benefiting – intentionally or inadvertently – from trades in the stock market.

A company may impose a blackout period only on key executives, or it may apply it to a broader group of employees.


A blackout period is a defined period during which the company's employees are not permitted to trade their stock. It's purpose is to prevent insider trading.

Prevents Insider Trading

Illegal insider trading happens when people with nonpublic information about a company use it for profit or to prevent a loss in the stock market. A securities law called Regulation Fair Disclosure requires that company officials announce major developments to the largest possible audience at once, to level the investing playing field. Even top company officials can't trade on the news before it is announced to the public.

However, as long as a company's financial statements are current with regulators, the business usually isn't legally obligated to impose a blackout period. Regulators keep track of insider trading activity through disclosures that corporate insiders must file. But companies use blackout periods anyway to reduce illegal behavior.

Access to Material Information

Blackout periods generally occur when insiders have access to material information, such as financial performance. A company may impose a recurring blackout period on a quarterly basis in the days surrounding an earnings report. Trading also might be restricted in response to major events, such as mergers or acquisitions, when corporate insiders have access to material information.

For quarterly earnings, the blackout period could systematically begin on the last day of the financial quarter and continue until one or two trading days after the company files its financial results. This way, the public has a fair amount of time to dissect financial results.

Consequences of Trading During Blackouts

If a corporate official violates a company's blackout period, his future with the company could be in jeopardy. In the past, certain companies have levied pay cuts and have removed directors from their posts for trading shares during a blackout period. However, trading during a blackout is not always high-profile or intentional. In cases of an honest mistake, it may be more appropriate to require the employee to attend training on the listing rules and other regulatory requirements.

Research Analysts Face Blackouts

Financial analysts provide research about publicly traded companies. When it comes to initial public offerings, research analysts, too, face blackout periods. Starting in 2003, a policy known as the Global Settlement forbade analysts from publishing research reports on initial public offering companies before those stocks begin trading in the public markets, and for up to 40 days afterward. The blackout rule was issued to prevent analysts from fulfilling a marketing role for new stocks.

In 2012, in conjunction with a new policy that encouraged small businesses to issue IPOs, the rules were relaxed, and the blackout period was shortened. As a result, analysts could begin publishing reports on IPO companies 25 days after the deal.