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Why Traders Keep Their Eyes Peeled For Quiet-Period Expirations

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Why Traders Keep Their Eyes Peeled For Quiet-Period Expirations

Many investors and traders have heard the term "quiet period" but fail to understand what it is and how it can affect a stock.

 

Quiet Period Defined

U.S. securities laws dictates that investment bank firms who work on an initial public offering are not allowed to issue ratings or guidance on the stock they helped issue.

Even though a firm's investment banking division worked on an initial public offering, their equity research department is not permitted to comment on the stock for the first 25 days of trading.

It is important to note that the quiet period was officially shortened to 10 days from 25 but most investment banks follow a 25-day rule.

Why Investors Should Care

Stocks tend to rise ahead of the expiration of the quiet period and this was most evident in the days leading up to the expiration of Twitter Inc (NYSE: TWTR)'s quiet period when the stock gained more than 6 percent.

Related Link: Twitter's Quiet Period Ended Sunday

As noted by IPOcandy.com, if the newly issued stock is well received by investors and the price of the stock moves up, then research firms could have a hard time justifying investors buy the issue. Moreover, the expiration of the quiet period could be a negative for the stock if a notable bank such as Goldman Sachs slaps a Hold rating in its first research report.

What To Look Out For

Nutanix Inc (NASDAQ: NTNX), an enterprise cloud platform provider, will see its quiet period expire on Tuesday.

Coupa Software Inc (NASDAQ: COUP), a cloud-based spend management provider, will see its quiet period expire on October 31.

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Posted-In: Equity Research investment banks IPOCandy.com Quiet Period Twitter IPOEducation Trading Ideas General Best of Benzinga

 

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