research report blackout period

Blackout Period

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on July 11, 2023

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Table of contents, what is a blackout period.

A blackout period is a specific window of time during which corporate insiders, such as executives, employees, and their families, are prohibited from trading in the company's stock .

A blackout period is typically enforced during periods of significant corporate events, such as earnings releases, mergers and acquisitions , stock offerings, and other important announcements.

During a blackout period, corporate insiders are not allowed to buy, sell, or transfer any company stock, including any stock options, shares of restricted stock, or other equity-based compensation .

The blackout period typically begins a few weeks before the scheduled event and lasts until a few days or weeks after the event, depending on the company's policies.

The main purpose of these periods is to ensure a level playing field for all investors and to prevent insider trading based on non-public, material information.

This helps to prevent any appearance of impropriety or unfair advantage that may damage the company's reputation and erode investor confidence.

Blackout periods are typically enforced by the company's legal and compliance departments, which may conduct audits and monitor trading activity to ensure compliance.

Violating blackout periods can result in significant penalties, including fines, legal action, and even termination of employment.

Regulatory Framework Governing Blackout Periods

Securities and exchange commission (sec) regulations.

The Securities and Exchange Commission (SEC) regulates and enforces financial securities laws in the United States. The SEC enforces various rules and regulations to prevent insider trading and securities fraud, including Regulation Fair Disclosure (FD).

Regulation FD requires publicly traded companies to disclose material information to all investors simultaneously, ensuring that no investor has an unfair advantage over others.

Company-Specific Policies

Companies often establish their own blackout period policies to ensure compliance with SEC regulations and maintain investor confidence.

These policies typically outline specific timeframes during which trading is prohibited and procedures for monitoring and enforcement. Company policies may vary but generally align with industry best practices and legal requirements.

Penalties for Non-Compliance

Failure to comply with blackout period regulations can result in severe consequences, including legal penalties, reputational damage, and negative impacts on stock prices.

Individuals who engage in insider trading may face criminal charges, fines, and even imprisonment, while companies may face fines and reputational damage that can erode investor trust.

Types of Blackout Periods

Earnings blackout period.

An earnings blackout period is when insiders are prohibited from trading company stock before and after quarterly or annual financial results are released.

This period typically lasts from the end of the fiscal quarter until one or two days after the company publicly announces its earnings. Earnings blackout periods help prevent insiders from trading on material, non-public information and maintain market integrity.

Merger and Acquisition (M&A) Blackout Period

An Merger and Acquisition (M&A) blackout period occurs when a company is involved in a merger or acquisition process. Insiders are restricted from trading during this time to prevent disseminating material, non-public information related to the transaction.

The duration of an M&A blackout period can vary, depending on the complexity of the transaction and the time it takes to complete due diligence and regulatory approvals.

Corporate Restructuring Blackout Period

A corporate restructuring blackout period is when insiders are prohibited from trading company stock.

At the same time, significant organizational changes, such as divestitures, spin-offs, or other major strategic shifts, are being planned or executed.

This blackout period is intended to prevent insider trading based on non-public information related to the restructuring and to maintain investor confidence in the company's stock.

Impact of Blackout Periods in Markets

On insider trading.

Blackout periods help prevent insider trading by restricting the ability of corporate insiders to trade during periods when material, non-public information is generated.

This helps ensure that all investors have access to the same information and reduces the potential for information asymmetry.

Without blackout periods, corporate insiders could use their knowledge of non-public information to gain an unfair advantage over other investors, leading to market instability and eroding investor confidence.

On Stock Price Volatility

Blackout periods can also reduce stock price volatility by limiting the potential for insider trading based on non-public information.

When insiders are prohibited from trading during blackout periods, there are fewer market participants trading on material information, which helps prevent stock prices from fluctuating wildly due to the actions of a few insiders.

With fewer insiders trading on material information, stock prices are more likely to reflect the true value of a company and exhibit less volatility .

On Investor Confidence

By promoting transparency and fair disclosure, blackout periods can increase investor confidence in financial markets.

When investors believe that they are not at a disadvantage compared to insiders, they are more likely to trust the integrity of the market and participate more broadly.

This, in turn, supports overall market stability and encourages more investment in the market.

Blackout periods play a crucial role in maintaining investor confidence by ensuring that corporate insiders cannot use their knowledge of non-public information to gain an unfair advantage over other investors.

Disputes and Concerns Surrounding Blackout Periods

Effectiveness of blackout periods.

While blackout periods are designed to promote fairness and prevent insider trading, some critics argue that they may be ineffective. Potential loopholes, such as trading through third parties or using complex financial instruments, can still be exploited by determined insiders.

Furthermore, blackout periods may not completely eliminate the possibility of information leakage, as insiders may still share non-public information with others.

Fairness Concerns

Some critics argue that blackout periods may unfairly restrict the individual freedom of corporate insiders to manage their personal finances .

They contend that the strict enforcement of blackout periods could lead to inconsistency in enforcement or inadvertently disadvantage certain individuals.

Blackout periods play a critical role in maintaining market integrity and promoting transparency and fairness in financial markets. The regulatory framework governing blackout periods ensures compliance with SEC regulations and aligns with industry best practices.

Different types of blackout periods, such as earnings, M&A, and corporate restructuring, help prevent insider trading based on non-public information, reduce stock price volatility, and increase investor confidence.

However, some critics argue that blackout periods may be ineffective in preventing insider trading, and strict enforcement could unfairly restrict the individual freedom of corporate insiders to manage their personal finances.

Despite these concerns, the benefits of blackout periods in promoting market integrity and investor confidence continue to be recognized by the financial industry and regulatory authorities.

Blackout Period FAQs

What is a blackout period.

A blackout period is a specified period during which certain financial transactions, such as trading in company stock or making changes to a retirement account, are prohibited.

Why do companies impose blackout periods?

Companies impose blackout periods to prevent insiders from trading on information that is not yet publicly available and to avoid any appearance of impropriety.

When do blackout periods typically occur?

Blackout periods typically occur during times when significant changes are expected to occur, such as mergers, acquisitions, or earnings announcements.

How long do blackout periods typically last?

The length of a blackout period can vary depending on the company and the circumstances. They may last a few days to several weeks.

Can blackout periods be lifted early?

Blackout periods can be lifted early in certain circumstances, such as when the expected event has already occurred or when the company's board of directors determines that it is no longer necessary to maintain the blackout period.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

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Blackout Periods: Definition, Examples, and Impact

Last updated 03/15/2024 by

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Understanding blackout periods

Blackout period definition, blackouts in retirement plans, regulation by the securities and exchange commission (sec), blackouts in stock transactions, blackouts in the financial industry, pros and cons of blackout periods.

• Prevents insider trading
• Maintains market integrity
• Ensures a level playing field for investors
• Restricts investment flexibility for employees
• Potential negative impact on market liquidity
• May cause uncertainty among investors

Examples of blackout periods in action

Political advertising blackout, technology sector blackout, regulatory framework surrounding blackout periods, sec guidelines on blackout periods, employee notification requirements, the impact of blackout periods on market dynamics, investor perception during blackout periods, market liquidity considerations, frequently asked questions, what is the primary purpose of a blackout period in publicly traded companies, how long can a blackout period last in employee retirement plans, what triggers a blackout period in stock transactions for publicly traded companies, how does the securities and exchange commission (sec) regulate blackout periods, do blackout periods affect market liquidity, are there any benefits to blackout periods in the financial industry, can blackout periods be imposed for reasons other than preventing insider trading, key takeaways.

• Blackout periods aim to prevent insider trading and maintain market integrity.
• Employee retirement plans commonly impose blackout periods during restructuring or maintenance.
• The SEC regulates blackout periods to protect employees and ensure fair market practices.
• Financial analysts face blackout periods to maintain objectivity in their analyses of IPOs.

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New research rules – finra rule 2241.

New Research Rules

FINRA’s released new research rules which generally:

– reduce the research quiet periods following IPOs and secondary offerings, – eliminate the quiet periods surrounding lock-up agreements, and – exempt certain debt research reports issued to institutional investors from most of these provisions

The Rule goes effective in stages. The rules that went effective on September 25, 2015 – and are now testable – are discussed below.

Effective September 25

Research Quiet Periods

Equity research has a 10 day quiet period following an IPO’s offering date. This applies to both syndicate managers and members (previously 40 days and 25 days).  The IPO or secondary offering date is the later of the effective date of the registration statement or the first date when securities are offered to the public.

For follow-on offerings syndicate managers and co-managers will have a three day quiet period (previously 10 days). Syndicate member have no blackout period for follow-on offerings.

New debt offerings are not subject to any quiet period.

Registration of Research Analysts

Individuals who only occasionally produce research reports are no longer considered research analysts. The definition of “research analyst” is someone who is primarily responsible for the preparation of the substance of a research report (plus their direct and indirect reports).

Conflicts of Interest

Firms must have written policies and procedures to manage 1) conflicts of interest, 2) research analyst public appearances, and 3) interactions and influence between research and non-research personnel.

Annual Attestation Requirement :

Firms do not have to annually attest that they have written supervisory policies and procedures reasonably designed to achieve compliance with the relevant research rules. FINRA Rule 3110 requires member firms to have a system of supervision reasonably designed to achieve compliance with all securities laws, regulations, and FINRA Rules (including research rules).

General Exemptive Authority :

FINRA, in exceptional and unusual circumstances, may conditionally or unconditionally grant an exemption from any of these new research rules for good cause, to protect investors, and serve the public interest.

Knopman Note

Be sure to focus on the revised equity blackout restrictions. Knowing that research can publish more quickly following the issuance of new shares will serve test-takers well.

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Dave's mission (and job: Managing Director of Course Design) is to make FINRA exam training engaging, approachable, and dare he even say, enjoyable. Having trained and coached over ten thousand students to exam success he knows how to present complex subjects in memorable and understandable ways. Prior to joining Knopman Marks in 2011, Dave practiced bankruptcy law at Weil, Gotshal & Manages and served as a law clerk in a the Southern District of New York Bankruptcy Court working on the General Motors and Lehman Brothers bankruptcies. Building on his legal expertise and training allows him to keep all our courses updated with the latest legislative and rule-making changes. Dave currently trains for the Securities Industry Essentials (SIE) exam and the Top-Off Series 6, 7, 24, 57, 63, 65, 66, 79, 86, 87, and 99 exams. He also delivers executive one-on-one training and shares his passion for learning outside of work as a ski instructor and yoga teacher. Dave graduated magna cum laude from Fordham Law School, and cum laude with a BA from the University of Pennsylvania.

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Six commonly asked questions (and answers) about quiet periods

Public healthcare companies often question the best course of action during quiet periods – those stretches of time during which they should limit their interaction with Wall Street due to their knowledge of material and timely information that has not yet been publicly disclosed. 

Specifically, management teams struggle to figure out what the quiet period means for their investor relations efforts. Should they bring to a halt all communications with the investment community or move forward with limited interaction? Should they answer only fact-based (or historical) questions or avoid inquiries altogether?

While the formal quiet period regulated by the SEC comes with clear guidelines and regulations, informal quiet periods, such as those at the end of each quarter, are far less defined, and variation exists in how much (or little) a company communicates with investors and analysts.

How can companies determine the right approach? Here, we answer some of the most common questions about quiet periods and share strategies to help you figure out the best quiet-period policy for your organization.

1. What is a quiet period?

Essentially, there are two kinds of quiet periods for publicly traded companies. The first surrounds a company’s IPO and is heavily regulated by the SEC, while the second is more loosely defined and refers to the period of time in which a company limits its interaction with investors and analysts immediately preceding or following the quarter-end, but before results are actually released.

2. Why do quiet periods exist?

The purpose of a quiet period is to prevent a public company making any comments about information that could cause investors to change their position on the company’s stock.

IPO quiet periods were created by the SEC to prohibit analysts who are lead and co-lead underwriters from issuing positive research reports that might influence security prices during the first few weeks of an IPO. In addition, quiet periods exist to protect companies from inadvertently violating Regulation Fair Disclosure (Reg FD) during the sensitive time in which they are aware of their quarterly financial results (or any material, non-public information), but have not yet publicly communicated this information.

3. When is the unofficial quarterly quiet period, and how long does it last?

There isn’t a standard length of time for unofficial quiet periods. These quarterly periods end, of course, with the earnings conference call and/or press release, but it’s up to each company to determine when they begin. Constructing the optimal quiet period will vary, depending on how quickly earnings are determined and how experienced executives are with analyst and investor interactions.

4. How do companies maintain shareholder communications during a quiet period?

The communications policy a company adopts helps frame how they communicate with the investment community and Wall Street. Some companies may still wish to communicate by simply avoiding off-limit topics, such as quarterly results, and sticking with fact-based responses. Other companies may comment on topics that have already been publicly disclosed, and still others may elect a period of time in which they go radio-silent. It really depends on the company’s comfort level and its view of its stakeholders.

5. How can companies navigate investor calls, conference participation and tradeshows around quiet periods?

Depending on the communications policy a company adopts, the level of communication at conferences and tradeshows will range widely. Some companies choose to eliminate participation in conferences, meetings or investor phone calls during that period, while others agree to go to conferences but not attend one-on-one meetings – with the caveat that all communications are webcast to be Reg FD-compliant. In other cases, some companies may pre-release quarterly results or confirm/update guidance with a press release in parallel with their conference participation.

Regardless of the communications plan a company has, the most important part is for a company to outline its policy, adhere to it and be consistent.

6. What is standard practice and what is recommended?

Company disclosure policies in a quiet period depend on a number of factors. Which practices are most common? Typically, a company will opt to do one of the following:

• Provide no formal or informal communications at all
• Answering only fact-based inquiries
• Imparting information only on overall long-term business and market trends
• Making an announcement if it expects results to differ materially from earlier forecasts and answer questions about information already made public.

In the interests of fairness and to mitigate the risk of inadvertent disclosures of material information, the policy should reflect a company’s comfort level with the amount of disclosure it wants to provide to Wall Street and the investment community. It is important to strike a balance. For example, going completely silent may not be in the best interests of small-cap companies that are thinly covered, or even for some larger companies.

If a company chooses to take investor and analyst calls during its quiet period, it needs to be clear and consistent in communicating the topics that are on and off-limits. It is also important that all designated spokespeople adopt the policy and remain consistent quarter over quarter.

As you develop your quiet-period policy, remember that there is no one right way to approach an unofficial quiet period. Ask yourself what’s in the best interests of your company, and then plan accordingly.

Tom McDonald is a partner and head of business development at Westwicke, a strategic communications and IPO advisory firm focused on healthcare. This article originally appeared on Westwicke’s website here

Tom McDonald

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Blackout Period: Definition, Purpose, Examples

Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator. She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest.

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

What Is a Blackout Period?

A blackout period is a policy or rule setting a time interval during which certain actions are limited or denied. It is most commonly used to prevent company insiders from trading stock based on insider knowledge .

Company retirement plans also may have a blackout period during which investors in the plan cannot modify their plan options.

Key Takeaways

• A blackout period is a temporary interval during which access to certain actions is limited or denied.
• The primary purpose of blackout periods in publicly traded companies is to prevent insider trading.
• A blackout period for an employee retirement plan temporarily prevents participants from modifying their plans.

Understanding Blackout Periods

Blackout periods may be imposed in certain contracts, policies, or activities. For example, a media company may impose a blackout on all political advertising for the 24 hours before an election so that one candidate can't lob an accusation that cannot be fact-checked or refuted before the polls open.

However, the most common use of the blackout period limits financial transactions based on insider knowledge.

Blackouts in Retirement Plans

Occasional blackout periods are common in employee retirement plans . During the blackout period, employees who invest in the company retirement or investment plan cannot make modifications to their plans, such as changing the allocation of their money, and may not be able to make withdrawals.

The length of time for a blackout is not limited by law. If the blackout is expected to last for more than three days, a notice of it must be given to the employees. However, the blackout period can last for weeks or even months.

A blackout period may be imposed because a plan is being restructured or altered. It gives the fund managers a chance to perform necessary maintenance on their funds, including accounting and periodic reviews. The blackout period prevents employees from making major changes to their investment options based on information that may soon be outdated. Directors and executive officers are also prevented from purchasing or selling their own company securities during the blackout.

The Securities and Exchange Commission (SEC) makes the rules that protect employees during blackout periods.

Blackouts in Stock Transactions

The primary purpose of blackout periods in publicly traded companies is to prevent insider trading . Some employees who work for publicly traded companies might be subject to blackout periods because they have access to insider information about the company.

The SEC prohibits employees, even top company officials, from trading based on company information that has not yet been made public. That’s why publicly traded companies might enforce blackout periods whenever insiders may have access to material information about the company, such as its financial performance.

For example, a company may impose a blackout period each quarter for a certain number of days before the release of an earnings report . Other events that can trigger a blackout period include mergers and acquisitions (M&A), the imminent release of a new product, or even the release of an initial public offering (IPO). In each case, insider knowledge would give an unfair advantage to the employee.

Blackouts in the Financial Industry

Since 2003, analysts have been subject to a blackout period that prohibit them from publishing research reports on companies engaging in IPOs before they begin trading on the open market and for up to 40 days after. In this case, the blackout rule is intended to prevent financial analysts from fulfilling any undisclosed marketing role in the IPO.

Blackout Period Example

If a company overseeing a pension fund is shifting from one fund manager to another at a different bank, the process would cause a blackout period. The blackout would give the firm time to make the transition from one fund manager to another while minimizing the impact on employees who depend on their retirement contributions.

U.S. Securities and Exchange Commission. " 17 CFR Parts 240, 245 and 249: Insider Trades During Pension Fund Blackout Periods ." Accessed April 15, 2021.

U.S. Department of Labor. " Labor Department Issues Rules on Disclosure of Pension Plan "Blackout Period ." Accessed April 15, 2021.

Financial Industry Regulatory Authority (FINRA). " Notice to Members: Guidance, Research Analysts and Research Reports ." Accessed April 15, 2021.

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Research Conflict Management Policies

MORGAN STANLEY INVESTMENT RESEARCH HAS ADOPTED CERTAIN CONFLICT MANAGEMENT POLICIES IN CONNECTION WITH THE PREPARATION AND PUBLICATION OF RESEARCH.

Introduction

This policy applies to investment research published by the Research Department of Morgan Stanley 1 and its affiliated companies (“the Firm” or “Morgan Stanley”) 2 .

This policy 3 is available from Morgan Stanley on request and is made available on the public website at www.morganstanley.com/institutional/research/ and for Firm investor clients, on the research pages of the Matrix website.  Morgan Stanley reserves the right to amend or supplement this policy at any time. For purposes of this policy, “equity research” means an analysis of equity securities of individual companies or industries that provides information reasonably sufficient upon which to base an investment decision; “fixed income research” means an analysis of debt securities that provides information reasonably sufficient upon which to base an investment decision; and “derivatives research” means an analysis of the price and market for any derivative that provides information reasonably sufficient upon which to base a decision to enter into a derivatives transaction (collectively “research” or “research reports”). Equity, fixed income, and derivatives analysts (collectively “research analysts” or “analysts”) refer to research analysts who publish equity, fixed income, and derivatives research reports, respectively.

The term “Research Management” is used to describe the senior management teams of the Research Department.

1. Identification and Disclosure of Possible Conflicts

Morgan Stanley policies and internal procedures are designed to assist the Firm in identifying and managing possible conflicts of interest, or the appearance of conflicts of interest, that might affect or raise questions about the impartiality of research. These conflicts can arise with regard to investor clients, the sales and trading activities of the firm, investment banking activities, corporate clients and the interests of the Firm’s employees. Morgan Stanley provides training for research analysts and other Firm personnel with whom analysts interact on the identification of potential conflicts. Research Management and the Legal and Compliance Division (“LCD”) provide assistance and guidance to Firm personnel as questions arise. Individual Firm personnel are responsible for raising identified conflicts or potential conflicts with their supervisors to ensure that conflict questions are referred to and considered at the appropriate level within the Firm. In addition Morgan Stanley conducts monitoring and has implemented other controls and procedures to confirm that conflicts are escalated appropriately. LCD monitors the application of the Firm's policy regarding the publication of research in the period before, during and after investment banking transactions, as described further in section 6 “Timing and Content of Research.” Morgan Stanley also has systems and processes that facilitate the required disclosures in research reports of interests and activities of the Firm which may appear to represent a conflict of interest (see “Disclosure of interests” ). The primary analyst(s) responsible for a research report is required to affirm that the views expressed in each research report accurately reflect his or her personal views, as applicable (see section 4 “Certification on each research report” ). Failure of Firm personnel to comply with Morgan Stanley policies may, depending on the facts and circumstances, result in remedial or disciplinary action by the Firm, including but not limited to termination of employment as determined by the Firm.

2. Supervision and Compensation of Research Analysts

Research analysts are not directly supervised by personnel from other areas of the Firm (in particular investment banking or sales and trading personnel) whose interests or functions may conflict with those of the research analysts. Senior Research Management personnel report either directly to Firm Management or to the most senior management level in the related sales and trading business.

Evaluation and compensation : The evaluation of research analysts for purposes of career advancement, compensation and promotion is structured so that non-research personnel do not exert inappropriate influence over analysts. The compensation of research analysts is determined on the basis of a number of factors, including quality, accuracy and value of research, productivity, experience, individual reputation, and evaluations by investor clients and employees in other parts of the Firm with whom analysts interact. Analysts' compensation may not be directly linked to specific transactions or the profitability of particular trading desks or investment banking groups but will in part reflect the overall profitability of the Firm as a whole, including the profitability of the Institutional Securities Group, which includes investment banking and sales and trading businesses.

Morgan Stanley does not permit investment banking personnel to participate in the Firm's evaluation of research analysts and limits the participation of sales and trading personnel in the Firm’s evaluation of analysts in compliance with CFTC rules and FINRA Rule 2242.

3. Activities of Analysts

Morgan Stanley restricts research analysts from performing roles that could prejudice, or appear to prejudice, the independence of their research. Pitches : Research analysts are not permitted to participate in investment banking pitches or to prepare or review the bankers’ materials for those pitches. Pitch materials may not contain the promise of favorable research coverage. No promotion of issuers' transactions : Research analysts may not be involved in promotional or marketing activities of an issuer of a relevant investment that would reasonably be construed as representing the issuer. Research analysts are not permitted to attend road show presentations by issuers that are corporate clients of the Firm relating to offerings of securities or any other investment banking transactions. Research analysts may, however, observe road shows without asking questions by video link or telephone from a remote location in order to help ensure that they have access to the same information as their investor clients.

Analysts, including equity research analysts, are permitted to attend ordinary course investor presentations (also known as non-deal related road shows) by issuers, including those that are corporate clients of the Firm, that do not promote offerings of securities or other investment banking transactions. Equity research analysts may not attend, however, if investment banking personnel are present.

Equity research participation in three-way meetings : Equity research analysts are not permitted to attend meetings with corporate clients of the Firm jointly with investment banking personnel (“three-way meetings”), except in widely-attended conferences and events and in specific circumstances as detailed below.  

Widely-attended conferences or other events : Analysts are permitted to attend and speak at widely-attended conferences or other events at which investment banking colleagues and clients, among others, may also be present.  These widely-attended conferences and events may include some investor presentations by corporate clients of the Firm. Other permitted activities : Analysts may be consulted by investment banking and sales and trading personnel on matters such as market and industry trends, conditions and developments and the structuring, pricing and expected market reception of securities offerings or other market operations.

Before investment banking receives a mandate for a transaction, equity research analysts may also carry out preliminary due diligence and vetting of issuers who may be prospective subjects of research or prospective investment banking clients, or both, and, subject to restrictions in certain jurisdictions, 4 may meet issuers at that time for this purpose (or otherwise upon the issuer's request) provided investment bankers are not present.

As required by the Research Settlement, equity research analysts and investment banking personnel may carry out joint due diligence with an issuer and other third parties (including, e.g., suppliers, customers, accountants, vendors, and regulatory authorities) after investment banking receives a transaction mandate or where the time frame is too short to provide for separate due diligence sessions (e.g., an overnight block trade), provided that such communications are chaperoned either by: 1) a member of LCD; or 2) outside counsel on the transaction who are knowledgeable regarding research and investment banking conflicts.

Research analysts may not be provided with material non-public information regarding an issuer or investment, unless the analyst is brought “over the wall” (also known as the “information barrier”) in accordance with Morgan Stanley procedures. This requires the prior consent of Research Management and a record to be made by LCD, specifically the Control Group, and potentially results in restrictions on the analyst's activities until the relevant material non-public information has become public or stale. In connection with a securities offering or other transaction and during the course of such an offering or transaction, Morgan Stanley policies permit analysts to meet and speak with potential investors, at meetings and in conversations not involving the issuer or investment banking colleagues, for purposes of investor education and information.

Fixed Income research participation in three-way meetings: Fixed Income research analysts are not permitted to attend meetings with corporate clients of the Firm jointly with investment banking personnel, for the purpose of marketing or soliciting investment banking business. Analysts' personal dealings : Analysts 5 are generally prohibited from trading securities or related derivatives of any issuer on which they issue research. Equity and fixed income research analysts who cover industries are prohibited from trading in the analyst’s global coverage sector, which consists of the MSCI/GICS industries. The prohibition on personal account trading therefore applies not only to the issuers covered by the research analyst but also to similar issuers in an industry. Industry analysts are prohibited from trading in investment funds whose performance, at the time of the purchase or sale, is materially dependent upon the performance of securities covered by the analyst. 6

Strategists are prohibited from trading in their discipline, and are prohibited from transacting in any securities or derivatives of such securities, or in any derivatives of a type, class or category they follow, prepare, or otherwise cover in research reports. Additionally, strategists are generally prohibited from trading in any investment funds whose performance, at the time of the purchase or sale, is materially dependent upon the performance of securities they recommend 7 .

Where personal account trading is permitted the Firm's policies and procedures generally require dealings to be conducted through an account with the Firm  and to be pre-cleared with the Trading Supervisor.

Research department personnel are also required to disclosure their personal holdings and outside business interests to enable the Firm to make appropriate conflicts disclosures.  In addition, in the EEA, the Firm has implemented policies and procedures with respect to personal dealings in accordance with Regulation (EU) No 596/2014 (Market Abuse Regulation).

4. Inducements and Inappropriate Influences

Morgan Stanley prohibits research analysts from soliciting or receiving any inducement in respect of their publication of research and restricts certain communications between research analysts and personnel from other business areas within the Firm that might be perceived to result in inappropriate influence on analysts' views. Inducements : Morgan Stanley policies and procedures prohibit research analysts from directly or indirectly offering favorable research to an issuer as consideration or inducement for the receipt of business or compensation. These restrictions do not preclude the acceptance of reasonable hospitality in accordance with the Firm's general policies on gifts, entertainment, and corporate hospitality. Inappropriate influences : Morgan Stanley has implemented policies and procedures, where appropriate, to regulate communications between Morgan Stanley research analysts and non-research personnel. The Research Department is physically separated from investment banking and sales & trading. There are security restrictions on access to research areas by non-research personnel. In addition:

• Investment banking, sales and trading personnel, and other non-research personnel are prohibited from attempting to influence the timing or content of an analyst's research report, and research analysts are prohibited from disclosing to any other business area of the Firm (other than the LCD) the timing or content of a research report prior to its publication (see Section 6 “Timing and Content of Research” ).
• Non-research personnel may not direct an analyst to publish a research report or to publish specific views and opinions in a research report. 
• Investment banking personnel are prohibited from providing analysts with material non-public information regarding an issuer or investment, unless the analyst is brought “over the wall” in accordance with Morgan Stanley procedures (see Section 3 “Other permitted activities” ).

Investment bankers are also prohibited from asking an analyst to initiate coverage of a U.S. Company (see “Coverage decisions” ) and from using research analysts to identify or strategize about potential investment banking business. Morgan Stanley provides Legal and Compliance notices and training to the relevant personnel on these policies.  To reinforce this, Morgan Stanley requires certain conversations to be logged in advance with and/or chaperoned by LCD.  For example, business-related conversations between investment bankers and equity research analysts about U.S. Companies must be chaperoned. Coverage decisions : Decisions to initiate, resume, suspend or discontinue research coverage of an issuer or investment are made by Research Management in conjunction with the research analyst concerned and in compliance with any applicable rules and regulations.  Research Management is permitted to take into account input with respect to research coverage from other business areas, including investment banking and sales and trading.  Input from investment banking with respect to equity research coverage of U.S. Companies or by a research analyst based in Australia  is limited to a discussion of the merits of coverage of particular sectors or other general categories and may not be issuer-specific.  

Certification on each research report : The primary analyst responsible for a research report on a specific issuer or issuers of securities is required to certify, at the time of publication, that the views expressed in the report accurately reflect his or her personal views about the subject securities or issuers, and that no part of his or her compensation was, is or will be directly or indirectly, related to the specific views or recommendations contained therein. This certification can be found in the disclosures section of each such research report.

5. Review and Comment on Research

Morgan Stanley policies and procedures are designed to ensure that parties with interests that may potentially conflict with those of recipients of research are not able to review or comment on research in a manner that might affect the impartiality of the research. Review of research:  Prior to publication, all research reports are reviewed by a supervisory analyst. The purpose of these reviews is to confirm compliance with the Firm's editorial guidelines and regulatory requirements, including the requirement that research be clear, fair and not misleading. Thereafter, all such research reports that contain any discussion of a company or other entity in relation to which Morgan Stanley has an investment banking mandate (which would not necessarily be limited to the issuer the Firm represents in that mandate) are reviewed by LCD to monitor compliance with any legal or policy restrictions on timing or content as described in Section 6  "Timing and content of research." Subject to Morgan Stanley’s policies and procedures, and with prior approval from LCD, an analyst may check the accuracy of factual statements with the relevant issuer that is the subject of a research report. This may be achieved by providing the issuer with a summary of facts for checking or a redacted version of the draft research report that contains no valuation, investment conclusion, recommendation or price target. For reports prepared by non-U.S. based analysts to be published prior to an initial public offering of a non-U.S. company’s shares, investment banking personnel may review such reports solely for fact checking purposes. Morgan Stanley policies further require analysts to record the reasons for any subsequent material change made to a research report after factual matters have been reviewed by issuers or non-research personnel when permitted. This record must be submitted to and approved by both Research Management and LCD prior to publication of the report. Role of review committees:  The Research Department has a Stock Selection Committee ("SSC") for Equity Research. SSC is made up of senior members of the relevant regional research departments and may include members of other departments, excluding investment banking. SSC aims to improve the quality of research content and delivery and reinforce the prevention of undue influence on research analysts from other employees, issuers and investors. SSC approval is required for all initiations, resumptions, suspensions and discontinuations of coverage, changes to ratings (including industry views) and certain changes to price targets and model portfolios, and certain other matters. In addition, research reports containing a trading or investment idea relating to the bonds, credit or other instruments of a single corporate issuer which initiate a new recommendation/trade idea, or contain certain changes to an existing recommendation/trade idea must be submitted to Fixed Income Research Management prior to publication.

Complaints:  Any complaints concerning the content of research reports should be referred to, and are dealt with by Research Management, where appropriate in conjunction with LCD in compliance with the Firm's complaint handling procedures and not by investment banking personnel. Retaliation policy:  The Firm and non-research personnel may not retaliate or threaten to retaliate against any research analyst for adversely negative or otherwise unfavorable research that may adversely affect the Firm's present or potential investment banking relationships and present or prospective trading or clearing activities.

6. Timing and Content of Research

Morgan Stanley policies and procedures are designed to ensure that decisions on the timing and content of research are not made or inappropriately influenced by persons with interests potentially conflicting with those of recipients of research and that new, material views are not selectively disclosed before broad dissemination. The timing of publication of a research report is determined primarily by the analyst on the basis of events affecting the issuer or investment concerned, perceived investment opportunities for research clients and developments in the analyst's opinion. Investment banking and sales and trading personnel have no control over, or input into, decisions on timing of publication of individual research reports. The Firm’s policies and applicable laws or regulations (e.g. the UK City Code on Takeovers and Mergers) may restrict the publication of research or the inclusion of opinions and/or recommendations in research, relating to the issuer or its related parties, at certain times when the Firm is involved in investment banking transactions. In the case of a merger or acquisition, the restriction may be applied both to bidder and target, regardless of which the Firm is advising. The nature, timing and length of the restriction will depend on the nature of the transaction. For example, Morgan Stanley may restrict the publication of research on an issuer for a short period after the announcement of a material merger, acquisition, restructuring or strategic transaction in which the Firm is involved, and during the pendency of the deal Morgan Stanley may limit an analyst’s ability to publish opinions or recommendations. In relation to offerings of securities, Morgan Stanley follows the customary practice, and in some jurisdictions Morgan Stanley is required by law to impose a “quiet period” or “blackout period” before and/or after the offering. A longer period may be required following initial public offerings of shares than for offerings involving listed issuers or offerings of investment grade debt securities (there may be no quiet period). Once advised of a role in a transaction by investment banking, LCD is responsible for monitoring compliance with the appropriate quiet periods and other restrictions. Dissemination of research and updated views : Research reports are made available through the research portal on Matrix and also distributed electronically by Morgan Stanley to clients. Certain, but not all, Morgan Stanley Research products are also made available to clients through third-party vendors or redistributed to clients through alternate electronic means as a convenience. Morgan Stanley policies do not allow research reports to be made available to non-research personnel of the Firm before they are made available to all Morgan Stanley clients. Disclosure of interests :  The Firm discloses in its research reports, in accordance with applicable law and regulation, conflicts of interest including those of the Firm and the analyst, that are or may be material in the context of the relevant report. 

Important Notes

This policy is not intended to create third party rights or duties that would not already exist if the policy had not been made available, or to constitute or form part of any contract between the Firm and any client or customer of the Firm (or any other person).

This policy is supplemented by more detailed policies and procedures adopted by the Firm. Variations and exceptions to this policy may be approved by Research Management and LCD in individual cases, with a view to promoting the objectives of this policy in the particular circumstances.

References to investment banking include capital markets and corporate broking personnel.

1. The “Research Department of Morgan Stanley” does not include Desk Analysts within Sales and Trading. Desk Analysts are not subject to this Research Conflict Management Policy. 

2. For the Research Department of Morgan Stanley & Co. International plc and Morgan Stanley Europe S.E., this policy represents the conflict management policy in connection with the publication of research as defined by and produced and disseminated within the definitions of “investment recommendations” and “information recommending or suggesting an investment strategy” in accordance with  Regulation (EU) No 596/2014 and “investment research” under the Financial Conduct Authority’s Conduct of Business Sourcebook Rule 12.2 (“COBS 12”).  Morgan Stanley & Co. International plc, authorized by the Prudential Regulatory Authority and regulated by the Financial Conduct Authority and the Prudential Regulatory Authority, disseminates in the United Kingdom research that it has prepared, and approves solely for the purposes of section 21 of the Financial Services and Markets Act 2000, research which has been prepared by any of its affiliates.   Morgan Stanley Europe S.E., regulated by Bundesanstalt fuer Finanzdienstleistungsaufsicht may also distribute research in Germany and the European Economic Area where required. Morgan Stanley, S.V., S.A. in Spain, supervised by the Spanish Securities Markets Commission may also distribute research in Spain. Morgan Stanley Corretora de Títulos e Valores Mobiliários S.A. (“MSCTVM”) is regulated by Comissão de Valored Mobiliários (“CVM”) and may distribute research in Brazil. This policy represents the conflict management policy in relation to CVM Rule n. 598/2018.

3. This policy complies with laws and regulations applicable to research and may go beyond what is required by those laws and regulations. Morgan Stanley & Co. LLC (“MSCO”) is party to the equity research settlement with U.S. federal and state regulators of April 2003 (the “Research Settlement”), and Morgan Stanley policies are designed to comply with the Research Settlement as well as FINRA Rule 2241 and other applicable SEC and FINRA regulations that address potential conflicts.  The Research Settlement applies to equity research analysts based in the United States and to equity research analysts who publish on individual companies incorporated or headquartered in the United States or whose principal equity trading market is in the United States.  These companies are referred to as “U.S. Companies.” With respect to Fixed Income Research, Morgan Stanley policies are designed to comply with FINRA Rule 2242 and other applicable SEC and FINRA regulations that address potential conflicts. The Firm’s policies are also designed to comply with the Commodities Futures Trading Commission’s (“CFTC”) Research Conflict of Interest Rules that apply to derivatives research. 

This policy is also intended to comply with Regulation (EU) No 596/2014 and applicable national legislation for research relating to issuers and financial instruments (as defined in Directive 2014/65/EU) admitted to trading, or traded on an EU trading venue (i.e. a regulated market or Multilateral Trading Facility (“MTF”) (altogether “Trading Venue”)) or for which a request for admission to trading on such Trading Venue has been made.

4. E.g., (i) under COBS Rule 12.2.21A, the Financial Conduct Authority prohibits analysts from interacting with an issuer to whom the firm is proposing to provide underwriting or placing services; and (ii) under Regulatory Guide 264, the Australian Securities & Investments Commission prohibits analysts from interacting with an issuer once the firm has decided to pitch for a transaction or seven days before a pitch presentation, whichever is earlier, in cases where an investor education report is to be produced in relation to the offering.

5. Also includes household members.

6. The prohibitions in this paragraph do not apply to a purchase or sale of any registered diversified investment company as defined under Section (5)(b)(1) of the Investment Company Act of 1940 or to a purchase or sale of an investment fund in a discretionary Robo-Advisor account.

7. The prohibitions in this paragraph do not apply to a purchase or sale of any registered diversified investment company as defined under Section (5)(b)(1) of the Investment Company Act of 1940 or to a purchase or sale of an investment fund in a discretionary Robo-Advisor account.

Chapter 30.5 – Addendum 3: Suggested Rider for (a) Presentation Materials for Kick-off Meeting and (b) Hong Kong Publicity Memorandum

Chapter 30.7 – Addendum 5: Form of Memorandum from Sponsor to Issuer

Due Diligence Guidelines –

Provision of Information to Analysts

Addendum 4: Standard Form Research Report Guidelines i

Date: [•]

To: Prospective syndicate members

Re: Project [•] – Syndicate Analysts’ research reports

Guidelines and procedures

The distribution or use of research reports by prospective syndicate members and their affiliated analysts (“Syndicate Analysts”) in advance of an equity offering is a well established practice in many markets outside the United States (the “US”). The Hong Kong and US legal considerations relating to such dissemination of research reports have been enumerated by counsel on a number of occasions. The purpose of this memorandum is not to reiterate these legal considerations in detail, but to set forth the procedures (the “Procedures”) to be followed by all prospective syndicate members wishing to distribute research reports about [•] (the “Company”) (including industry sector reports that contain any analysis of the Company) in advance of the anticipated offering of the Company’s equity securities (the “Offering”). The Procedures are set forth in Annex A .

The Procedures are designed:

(a) to establish that the research is independently produced by the report’s author(s), reflects the author(s)’ own independent views, and does not reflect the views of the Company, the Global Coordinator(s), the Sponsor or any other syndicate member;

(b) to ensure that the distribution of the reports complies with the securities laws of Hong Kong, the US[, and] the United Kingdom (the “UK”) [, the People’s Republic of China (the “PRC”), Japan and Canada]; ii and

(c) to facilitate compliance with applicable statutory and regulatory requirements, including the requirements of paragraph 16 (“Paragraph 16”) of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (the “SFC”), including the requirement for a regulated firm to maintain procedures and policies to prevent investment analysts from being provided with any material information including forward-looking information (whether qualitative or quantitative) concerning the new listing applicant that is not reasonably expected to be included in the prospectus and is not publicly available, as well as the prohibition against analysts seeking such information from the listing applicant or its directors, employees or substantial shareholders, or any of their respective advisers.

Each prospective syndicate member should note that:

(a) failure to comply with the Procedures could result in its removal from the syndicate as well as regulatory scrutiny and sanction;

(b) there should be no discussion or disclosure of any price or valuation estimates or other information to be included in any pre-offer research reports with or to potential investors or sales and trading personnel until distribution of the research reports in accordance with these research guidelines; and

(c) any syndicate member wishing to distribute research in jurisdictions other than Hong Kong, the US, the UK [and the PRC], iii is responsible for ascertaining and complying with the legal requirements in such jurisdictions.

The following is a summary of certain key dates iv for the distribution of research reports in advance of the Offering:

Deemed agreement by syndicate members

By accepting an invitation to the Syndicate Analysts’ meeting with the Company (“Analysts’ Presentation”), a syndicate member (or its associated analyst) is deemed to have:

(a) agreed to submit its research report to [name of counsel to the Underwriters] for legal and regulatory review, including for verification of the accuracy of the legends and for consistency of disclosure between the prospectus and the research report, provided that counsel may discuss with such syndicate member any issues arising from such review and may, if required, raise the same afterwards with the Sponsor(s) and/or Global Coordinator(s);

(b) warranted and represented to the Sponsor(s) and the Global Coordinator(s) that it has not sought or received, and will not seek, from the Company or its directors, employees or substantial shareholders, or any of their respective advisers any material information, including forward-looking information (whether qualitative or quantitative) concerning the Company, excluding information that is reasonably expected to be included in the prospectus or publicly available; and

(c) agreed and represented to the Sponsor(s) and the Global Coordinator(s) that it (i) has received a copy of, (ii) has read and understands, and (iii) will comply with the matters set out in this memorandum, including but not limited to the Procedures.

Hong Kong legal and regulatory background

While there are no express legal prohibitions under Hong Kong laws that prevent the publication of research reports, there are various legal risks involved. Where research material directly relevant to the Company is published close in time to the Offering, the risk is that such material may be treated as part of the documents by which the Offering is made. If any statements are found, with the benefit of hindsight, to be false or misleading, and a subscriber for securities in the Company successfully argues that he or she has relied on such material in the investment decision and consequently suffered loss, this could result in contractual, tortious and/or statutory (possibly even criminal) liabilities under Hong Kong law.

The issue of research reports in certain circumstances may also be taken as being calculated to invite offers by the public to subscribe for the Company’s securities. If so, the report itself might be treated as an invitation to the public to enter into an agreement to acquire securities, which is prohibited unless one of the safe harbours apply. The report may also fall within the definition of a prospectus, triggering a number of legal requirements relating to registration, translation and disclosure, the non-compliance with which may result in criminal and civil liabilities.

Research reports produced by firms regulated by the SFC, to which Paragraph 16 applies, are subject to a number of restrictions in relation to the preparation and distribution of such reports.

Under the SFC regulations, regulated firms must have policies and control procedures to ensure that analysts are not provided by the firm with any material information, including forward-looking information (whether qualitative or quantitative) concerning the listing applicant, if such information is not reasonably expected to be included in the prospectus or publicly available. In addition, research analysts must refrain from seeking to obtain any such information from the listing applicant or its directors, employees or substantial shareholders, or any of their respective advisers.

In determining whether a piece of information is “material”, the SFC will consider whether the information is material to an investor in forming the valid and justifiable opinion of the listing applicant and its financial condition and profitability.

Generally, the SFC expects that an analyst should only use information that is reasonably expected to be included in the prospectus or that is publicly available.

Given the legal considerations associated with the publication of pre-offer research, each prospective syndicate member must make its own determination regarding whether to publish research in advance of the Offering, whether any research produced is complete, accurate and not misleading, and whether compliance with the Procedures is sufficient to avoid liability under applicable securities laws and regulations. Neither the Global Coordinator(s) nor the Sponsor(s) accept(s) any liability in connection with the matters discussed in this memorandum.

If any potential syndicate member requires an explanation of the legal reasons behind the Procedures or wishes to discuss the legal considerations related to pre-offer research, they should contact [•] at [name of counsel to the Underwriters], [telephone number and email address], or a firm in the relevant jurisdiction with a recognised international securities practice with questions relating to the relevant requirements under local laws and regulations.

1. Research reports should comply with the following general principles:

(a) the report must be, and should present itself as, an independent outsider’s view of the Company which has been independently produced and has not been verified or authorised by the Company or any syndicate members acting as underwriters of the Offering;

(b) the source of the information should be made clear. In particular, where statements are matters of opinion or conjecture of the authors this should be brought out;

(c) to the extent that statements and their implications can be substantiated against appropriate independent third party sources, this should be done by way of references and/or footnotes to such sources. To the extent that they cannot be substantiated, this should be made clear. Statements should not be misleading by omission;

(d) to the extent that information is based on published or historical information, and particularly if this information has not been updated, this should be made clear;

(e) it should be made clear that the research report does not, and does not attempt to contain everything material relating to the Company, and the report must not appear to be a definitive description of the Company, its financial condition or its prospects;

(f) the report should not discuss nor make reference to the Offering;

(g) a firm that has an investment banking relationship with the Company (including involvement in an initial public offering as sponsor, or otherwise acting as corporate finance adviser, or as an underwriter) is required to disclose that fact as a disclaimer in the research report under the requirements of the SFC. The disclaimer should state clearly (i) the nature of the bank’s relationship with the Company and the specific role(s) being undertaken or contemplated (e.g., sponsor, underwriter, manager, co-manager, lead manager, etc.) and (ii) whether the firm or its affiliate(s) has been appointed or is seeking to be appointed. It is not sufficient simply to state that a firm “may be appointed”; 

(h) the report should not contain any material information, including forward-looking information (whether qualitative or quantitative) concerning the Company that is not reasonably expected to be included in the prospectus or publicly available (or is derived from such information). In addition, the author of any research report must observe the restrictions imposed by the SFC on seeking to obtain from the Company or its directors, employees, or any of their respective advisers any such information;

(i) because research reports are not an offer to sell or an invitation to buy securities, and to reduce the risk of any such characterisation, research reports must not contain any “buy”, “sell” or other recommendation with respect to, or price targets for, the securities covered by the Offering;

(j) [projections and forecasts relating to the Company may be included if prepared by the authors of the research report independently of the Company and complying with paragraphs 13 and 14 below]; and

(k) during the preparation of research reports, Syndicate Analysts must comply with all applicable legal and regulatory requirements, including but not limited to Paragraph 16 in connection with the content and issue of the research reports.

For the purposes of these Procedures, “research reports” include both newly-issued and, to the extent republished or redistributed, previously-issued reports and circulars as well as reports disseminated electronically, and includes single-company reports, any industry or other report containing any analysis of the Company, and any other form of written opinion or recommendation concerning the Company.

2. Each member of the syndicate is responsible for its and its associates’ compliance with all applicable laws and regulations in the course of producing any research report, including but not limited to any requirements imposed from time to time by the SFC and any procedures set out by the Sponsor(s). [Optional wording: Research analysts may only participate in analyst briefings, question-and-answer sessions and/or any other means of communication with the Company under the supervision of a representative from each of the Sponsors.]

3. Unless otherwise notified in writing by the Global Coordinator(s), research reports must not be published or distributed anywhere in the world during a blackout period (the “Blackout Period”) expected to commence on [•] [ Consider providing guidance in a footnote on commencement of Blackout Period ] and to end on the later of (a) 40 days after the pricing of the Offering v and (b) such later date as the Global Coordinator(s) may indicate in writing. The Global Coordinator(s) will confirm the Blackout Period end date upon completion of the Offering.

4. Research reports may not be distributed or transmitted, directly or indirectly, by or on behalf of any prospective syndicate member into the US [or to US persons (as defined in Regulation S under the US Securities Act of 1933 (the “Securities Act”))] vi at any time during the Restricted Period or at any time during the Blackout Period. The “Restricted Period” has already begun and will end at the commencement of the Blackout Period. During the Restricted Period, research reports should be prepared and delivered only in physical form and should not be included in any electronic retrieval system.

5. During the Restricted Period, research reports may be distributed only outside the US by non-US syndicate members [to non-US persons who appear on a list prepared by such syndicate member as described in this paragraph]. vii Except as provided in this paragraph, the list should consist only of persons who (a) are institutional investors on the syndicate member’s research mailing list and (b) have addresses outside the US, Japan and Canada [and are not US persons]. viii Each such syndicate member must screen its list to ensure that all recipients meet these criteria. If any reasonable doubt exists regarding whether a recipient is in the US [or is a US person], ix the syndicate member must refrain from sending a research report. Subject to the paragraphs below, research reports may be distributed only to persons who the syndicate member distributing such report has no reason to believe will, directly or indirectly, further distribute such research reports into any jurisdiction x [or to a US person]. xi

In Hong Kong, research reports should be distributed only to, and attendees at pre-marketing meetings and roadshows should only be, “professional investors” (as defined in the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) and any rules promulgated thereunder). Under no circumstances may research reports be distributed to the general public. Distribution of the research reports in Hong Kong is only permitted during the period after the Listing Committee of The Stock Exchange Hong Kong Limited has considered and approved the proposed listing of the Company and before the Blackout Period has commenced. Syndicate members will be notified by the Global Coordinator(s) when such approval has been obtained. If the research report is distributed to persons outside of Hong Kong, the securities laws of the jurisdiction into which the research reports are sent will apply. However, care should be taken to ensure that the research report or its contents do not “flow back” into Hong Kong (electronically or otherwise).

In the PRC, syndicate members may only distribute research reports to persons in the PRC in full compliance with applicable laws and regulations.

Research reports may only be distributed in the UK to:

(a) persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”);

(b) high net worth entities falling within Article 49(2)(a) to (d) of the Order; or

(c) persons who are intermediate customers under Chapter 4 of the FSA Conduct of Business Rules; provided that the research report is prepared and distributed, or approved, by a person authorised under the Financial Services and Markets Act 2000.

If there is any doubt as to whether the intended recipient falls into any of these categories, UK counsel should be consulted in advance. However, in no circumstances should a research report be distributed to a member of the general public in the UK.

6. Research reports must not be sent to the general public nor to the press (including information vendors and wire services) or other media and must not be distributed at, or with any invitation to, any roadshow presentations or other investor meetings.

Research reports may only be circulated to a limited number of persons to whom the relevant syndicate member (or its associate analyst) customarily gives research reports. This list of recipients must be carefully scrutinised and restricted to include only institutional investors whom its sales and/or equity capital markets departments deem may potentially have an interest in the Company’s shares or in the Offering. The syndicate member is required to maintain a list of all recipients of its research reports and to assign persons with relevant knowledge and experience to review the list to ensure that it does not contain recipients who are members of the press or media, and the syndicate member (or its associate analyst) must not distribute the research reports to anyone whom it has reasonable grounds to suspect may have violated the conditions of receiving research reports in the past.

All syndicate members who distribute research reports should issue only such number of research reports as is consistent with their past practice.

Each syndicate member should ensure that any person to whom a research report is sent also receives a copy of the preliminary offering circular. Research must not be distributed to anyone who is restricted from receiving a copy of the offering circular or prospectus under applicable laws or regulations or otherwise.

7. A syndicate member involved in corporate finance/underwriting or general advisory work for any member of the listing applicant’s group or any of their advisers may receive information, such as internal budgets and projections, that is not appropriate for publication. Each syndicate member must ensure that appropriate “Chinese walls” (or information barriers) exist within its organisation to ensure separation between its investment banking department, corporate finance department, underwriting department and research department such that the form and content of research reports will be prepared independently by its analysts in its research department. In particular, syndicate members are reminded of the SFC’s recommendations regarding the establishment and maintenance of internal policies that:

(a) ensure that research analysts responsible for producing research on a new listing applicant are not provided by the firm with any material information, including forward-looking information (whether quantitative or qualitative) about the Company that is not (i) reasonably expected to be included in the prospectus or (ii) publicly available; and

(b) require analysts to disclose to the Sponsor and the Company xiii instances where they have been provided with information not contained in the prospectus, that may compromise their integrity and ethics.

Each member of the syndicate should ensure its investment banking department does not pre-approve analyst reports, except in circumstances, subject to oversight by its compliance or legal department, where its investment banking department reviews a research report for factual accuracy before publication.

8. There should be no discussion or disclosure of any estimates or other information to be included in any pre-deal research reports with or to potential investors or sales and trading personnel until publication of the research reports in accordance with these research guidelines.

9. All research reports must contain legends substantially in the form set forth in [Part A and, if the research report contains any forecast or projection, substantially in the form set out in Part B of] xiv Annex B in prominent type on the front, inside front or inside back cover and on the bottom of each page, if relevant. If the legends are put on the inside front or back cover, then there should be a prominent cross-reference to the legends on the front cover. xv

10. [All research reports must be submitted in draft form to [individual] of [name of counsel to the Underwriters] at [email address] on or before [date]. [Name of counsel to the Underwriters] will conduct a legal and regulatory review for verification of the accuracy of the legends and for consistency between the disclosures in the prospectus and the research report. Counsel may discuss with the relevant syndicate member any issues arising from such review and may, if required, raise the same afterwards with the Sponsor(s) and/or Global Coordinator(s).

Review by [name of counsel to the Underwriters] will be limited to a reasonable number (not usually expected to exceed three) of substantially final or very advanced draft(s) of each research report submitted. As far as practicable, Syndicate Analysts should employ redlining or other customary methods to indicate changes between drafts. Each Syndicate Analyst should specify whether it wants reviewers’ comments to be directed or copied to its compliance or legal departments.

Notwithstanding such review, the research reports will remain the sole responsibility of the author(s) thereof. Neither the Global Coordinator(s), the Sponsor(s), [name of counsel to the Underwriters] nor [name of counsel drafting the prospectus] will accept any responsibility or liability for the research reports. The research reports may not be published until the review procedure is complete.]

The Company will not review any research reports produced by syndicate members.

11. Any syndicate member issuing a research report whose employees or partners responsible for preparing and issuing research reports are in possession of any information concerning the Company which is not known to the market and which, if known, would be likely to have a material effect on the price or trading volume of any of its securities should discuss such matter with [name of counsel to the Underwriters] prior to issuing such report.

12. Each syndicate member’s research report should be precisely dated with a date prior to the commencement of the Blackout Period and numbered. The date must appear in a prominent position. Each research report must have a specific number assigned to it and such number must appear on the front cover of the research report. Each syndicate member should maintain records of the identity of persons to whom it distributes research reports.

13. If projections or valuation methodologies are included in a research report, detailed and complete assumptions underlying such projections or valuation methodologies must be stated. Only valuation ranges (which should be as wide as possible), discussion of valuation methodology and comparable analyses may be included. Inclusion of valuations (e.g., per share valuations) other than in the form of a range is not permitted. xvi Dividend projections are also not permitted.

[The legends relevant to forecasts and projections, substantially in the form set out in Part B of Annex B, must be included in any research report containing such forecasts or projections.]

14. [The Company’s prospectus will contain a profit [forecast] [estimate] for [up to] the year ending [•]. xvii ] Research reports may include forecasts, projections and valuations of the Company covering a period on the basis set out below. Syndicate members must ensure that they comply with the following when including forecasts, projections or valuations in their research reports:

(a) Forecasts, projections and valuations included in research reports must be prepared independently of the Company and not based on, or derived from, any material information, including forward-looking information (whether qualitative or quantitative) concerning the Company that is not reasonably to be expected to be included in the prospectus or publicly available. Any forecast, projection, valuation or other forward-looking statement relating to the Company in research reports must be limited to a period of time not extending beyond [•] xviii and where appropriate, must be stated in terms of a range. To the extent a discounted cash flow model is discussed as a valuation methodology, forecasts and projections customarily used to substantiate the discounted cash flow model may go out further. However, inclusion of forecasts, projections or valuations may lead to increased liability with respect to such research report and a high standard of care should be taken in their preparation. No Syndicate Analyst should discuss with the Company any forecasts, projections or valuations not to be included in the prospectus.

(b) If forecasts, projections or valuations are to be included in research reports, in order to minimise the potential risk:

• they must comply with the requirements of local law;

• they must be fairly based;

• the report must make clear that they represent the opinion of the authors alone and must be accompanied by appropriate cautionary language indicating that such forecasts, projections or valuations may or may not occur, as well as any other applicable risk factors;

• detailed and complete assumptions on which they are based must be clearly stated, the sources used must be identified and the sensitivity of the projections to any exogenous factors must be estimated; and

• the report must make it clear that they represent the analyst’s own analysis and is not derived from any material information, including forward-looking information (whether qualitative or quantitative) concerning the Company that is not reasonably to be expected to be included in the prospectus or publicly available.

15. Any information disclosed to a syndicate member (or its associate analyst) at the Analysts’ Presentation must be kept confidential save for the distribution of the research reports in accordance with these Procedures.

Legends and Disclaimers

[Part A:] Additional legends to be used in research reports

This document has been prepared by its authors independently of [•] (the “Company”). [Name of syndicate member] has no authority whatsoever to give any information or make any representation or warranty on behalf of the Company, its shareholders, [name of Sponsor(s)], the advisors to [name of syndicate member], the Company, its shareholders or [name of Sponsor(s)], or any other person in connection therewith. In particular, the opinions, estimates and projections expressed in it are entirely those of the authors hereof and are not given as an agent of the Company, its shareholders, [name of Sponsor(s)], the advisors to [Name of syndicate member], the Company, its shareholders or [name of Sponsor(s)] or any other person or in its capacity as a manager or underwriter of any offering.

[ Subject to compliance with relevant firm’s internal policies : [Name of syndicate member] and/or one or more of its affiliates is acting as [state role] in [a forthcoming equity fund-raising exercise by the Company]]. This document does not constitute or form part of any offer, solicitation or invitation to subscribe or purchase any securities nor shall it or any part of it form the basis of or be relied upon in connection with any contract or commitment whatsoever. Any decision to purchase or subscribe for securities in any offering must be made solely on the basis of the information contained in the prospectus or other offering circular issued by the Company in connection with such offering.

This document is based upon information that we consider reliable, but [Name of syndicate member] has not independently verified the contents hereof. The facts described in this report, as well as the opinions, estimates, forecasts and projections expressed in it, are as of the date hereof and are subject to change without notice. No representation or warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy, completeness or reasonableness of the information, opinions, estimates, forecasts and projections contained in this document, and none of [Name of syndicate member], the Company, its shareholders, [name of Sponsor(s)] the advisors to [Name of syndicate member], the Company, its shareholders or [name of Sponsor(s)] nor any other person accepts any liability whatsoever for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection therewith.

THIS DOCUMENT IS STRICTLY CONFIDENTIAL TO THE RECIPIENT. IT IS BEING SUPPLIED TO YOU SOLELY FOR YOUR INFORMATION AND MAY NOT BE REPRODUCED, REDISTRIBUTED OR PASSED ON, DIRECTLY OR INDIRECTLY, TO ANY OTHER PERSON OR PUBLISHED, IN WHOLE OR IN PART, FOR ANY PURPOSE. NEITHER THIS DOCUMENT NOR ANY COPY OF IT MAY BE TAKEN OR TRANSMITTED INTO THE UNITED STATES, CANADA OR JAPAN, OR DISTRIBUTED, DIRECTLY OR INDIRECTLY, IN THE UNITED STATES, CANADA OR JAPAN [OR PROVIDED OR TRANSMITTED TO ANY U.S. PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED)]. xix THE DISTRIBUTION OF THIS DOCUMENT IN OTHER JURISDICTIONS MAY BE RESTRICTED BY LAW, AND PERSONS INTO WHOSE POSSESSION THIS DOCUMENT COMES SHOULD INFORM THEMSELVES ABOUT, AND OBSERVE, ANY SUCH RESTRICTIONS. BY ACCEPTING THIS REPORT YOU AGREE TO BE BOUND BY THE FOREGOING INSTRUCTIONS.

THIS DOCUMENT IS FOR DISTRIBUTION IN HONG KONG ONLY TO PROFESSIONAL INVESTORS (AS DEFINED IN THE SECURITIES AND FUTURES ORDINANCE (CHAPTER 571 OF THE LAWS OF HONG KONG) AND ANY RULES PROMULGATED THEREUNDER).

[THIS DOCUMENT IS FOR DISTRIBUTION IN THE PEOPLE’S REPUBLIC OF CHINA (THE “PRC”, FOR THE PURPOSE OF THIS DOCUMENT, EXCLUDING HONG KONG SPECIAL ADMINISTRATIVE REGION, MACAU SPECIAL ADMINISTRATIVE REGION AND TAIWAN) ONLY TO SPECIFIC QUALIFIED DOMESTIC INVESTORS. OTHER PERSONS SHOULD NOT ACT OR RELY ON THIS DOCUMENT OR ANY OF ITS CONTENTS. NO PUBLIC MEDIA OR OTHER MEANS OF PUBLIC DISTRIBUTION OR ANNOUNCEMENT WILL BE USED WITHIN THE PRC IN CONNECTION WITH THE DELIVERY OR DISTRIBUTION OF THIS DOCUMENT. NEITHER THIS DOCUMENT NOR ANY PART OF IT IS INTENDED AS, OR CONSTITUTE PROVISION OF ANY CONSULTANCY OR ADVISORY SERVICE OF SECURITIES INVESTMENT. SUBJECT TO THE FOREGOING, THE DISTRIBUTION OF THIS DOCUMENT DOES NOT CONSTITUTE A PUBLIC OFFER OF THE SHARES UNDER THE SECURITIES LAW OF THE PRC, AND ARE NOT INTENDED AS, AND DO NOT CONSTITUTE, PROVIDING CONSULTING OR ADVISORY SERVICE OF SECURITIES INVESTMENT AS DEFINED UNDER PRC LAWS.

本文件仅向中华人民共和国（下称”中国”，就本文件而言，不包括香港特别行政区、澳门特别行政区和台湾）特定的合格境内投资者之发行。其他人士不得就本文件或其中任何内容采取行动，也不得依赖本文件或其中任何内容。不得在中国境内采用公众媒体或其他公开发布或公告的方式发送或分发本文件。本文件的全部或部分均不得用作或构成任何证券投资的咨询服务。在满足上述要求的前提下，本文件的分发不构成中国证券法下的股票公开发售，且不得用作或构成中国法律所定义的证券投资咨询服务。]

IN THE UNITED KINGDOM, THIS DOCUMENT IS FOR DISTRIBUTION ONLY TO (I) PERSONS WHO HAVE PROFESSIONAL EXPERIENCE IN MATTERS RELATING TO INVESTMENTS FALLING WITHIN ARTICLE 19(5) OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2005 (THE “ORDER”) OR (II) HIGH NET WORTH ENTITIES FALLING WITHIN ARTICLE 49(2)(A) TO (D) OF THE ORDER OR (III) PERSONS WHO ARE INTERMEDIATE CUSTOMERS UNDER CHAPTER 4 OF THE FSA CONDUCT OF BUSINESS RULES (ALL SUCH PERSONS TOGETHER BEING REFERRED TO AS “RELEVANT PERSONS”). IN THE UNITED KINGDOM, THIS DOCUMENT IS DIRECTED ONLY AT RELEVANT PERSONS, AND OTHER PERSONS SHOULD NOT ACT OR RELY ON THIS DOCUMENT OR ANY OF ITS CONTENTS.

(1) To the extent that the disclaimers appear in the firm’s “standard disclaimer” these may be omitted from the legends. The legends should be reviewed by [name of counsel to the Underwriters] and other relevant legal advisers prior to publication.

(2) The following statement shall be included in large type on the bottom of each page of the research report: “THIS DOCUMENT MAY NOT BE DISTRIBUTED IN THE UNITED STATES, CANADA[, THE PEOPLE’S REPUBLIC OF CHINA (THE “PRC”) (EXCEPT IN COMPLIANCE WITH THE APPLICABLE LAWS AND REGULATIONS OF PRC)] OR JAPAN. THIS DOCUMENT HAS BEEN FURNISHED TO YOU SOLELY FOR YOUR INFORMATION AND MAY NOT BE REPRODUCED OR REDISTRIBUTED TO ANY OTHER PERSON.”

[Part B:] Legends to be inserted where the research report contains any forecast or projection xx

Opinions, estimates, forecasts and projections, if any, contained in this report are our current opinions as of the date appearing on this report only, based on information that may not be accurate or complete. Before acting on any opinion in this report, clients should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice.

Forecasts, projections and valuations are inherently speculative in nature and may be based on a number of contingencies. Clients should not regard the inclusion of any forecasts, projections and valuations in this report as a representation or warranty by any person that these forecasts, projections or valuations or their underlying assumptions will be achieved.

i This form is applicable only to a single listing on the Hong Kong Stock Exchange and should be used for transactions where the earliest expected date of submission of the Form A1 falls on or after 31 October 2011

ii See paragraph 5 of the Procedures.

iii The JGC(s)/Sponsor(s) may retain or remove the PRC as required. Some firms may be comfortable with distribution into the PRC provided the relevant legal requirements are met, while other firms note the difficulty in practice of monitoring such compliance. References to the PRC in these due diligence guidelines should be read on the basis that (a) it is the relevant JGC(s)/Sponsor(s)’ decision whether distribution in the PRC is permissible and (b) the relevant disclaimers and legends must be signed off by PRC legal counsel on the relevant transaction.

iv If the transaction falls under Category 2 of Regulation S, the Blackout Period should be revised to end on the later of “(a) 40 days after the closing of the Offering; (b) the date on which all of the securities have been sold; and (c) such later date as the Global Coordinator(s) may indicate in writing.”

v If the transaction falls under Category 2 of Regulation S, the Blackout Period should be revised to end on the later of “(a) 40 days after the closing of the Offering; (b) the date on which all of the securities have been sold; and (c) such later date as the Global Coordinator(s) may indicate in writing.”

vi Include the restriction on distribution to US persons if the transaction falls under Category 2 of Regulation S.

vii Ibid.

viii Ibid.

ix Ibid.

x This drafting assumes prohibition of any onward distribution. An alternative formulation is prohibiting onward distribution into any jurisdiction other than those permitted under these guidelines or specifically with the prior consent of the JGC(s) / Sponsor(s).

xi See footnote iii.

xii See footnote ii. Any wording with respect to the PRC included in the research guidelines must be vetted by the PRC counsel to the Underwriters acting on the transaction

xiii See paragraph 50 of the Consultation Conclusions on the Regulatory Framework for Pre-deal Research.

xiv Remove reference to Parts A and B if Part B is not applicable and removed from these guidelines.

xv Although there are stylistic differences in the market (e.g., some firms put the majority of their legends on the inside front cover), as a matter of best practice legends and disclaimers should appear, or be referred to, on the front cover.

xvi Research reports must not contain any specific target price or a specific valuation of the company (either on a per share basis or whole company basis) that would enable the reader to work out a target share price. In practice, however, where the analyst presents balance sheet or income statement items (e.g., profit or revenue) for a forecast year, these items cannot and need not be in a range.

xvii The JGC(s)’s and Sponsor(s)’ transaction teams should confirm this date with their respective legal and compliance functions.

xviii Ibid.

xix Include the restriction on distribution to U.S. persons if the transaction falls under Category 2 of Regulation S.

xx Remove this section if not relevant.

HKCFEF Limited and the contributing law firms, accountants and sponsors are not offering these due diligence guidelines as legal, financial or professional advice or services and they should not be relied upon as such. These due diligence guidelines should not be used as a sole basis for any decision, action or inaction and are not meant to serve as a substitute for the advice of qualified professionals. See here for the full terms and conditions.

Due Diligence Guidelines

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Hong Kong Sponsor Due Diligence Guidelines

2020 edition

Published by HKCFEF Limited

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Blackout Period

What Is a Blackout Period?

A blackout period is a policy or rule setting a period interval during which certain activities are limited or denied. It is most commonly used to prevent company insiders from trading stock in light of insider knowledge .

Company retirement plans likewise may have a blackout period during which investors in the plan can't change their plan options.

Grasping Blackout Periods

Blackout periods might be imposed in certain contracts, policies, or activities. For instance, a media company might impose a blackout on all political advertising for the 24 hours before an election so one candidate can't hurl an allegation that can't be reality checked or discredited before the surveys open.

Nonetheless, the most common utilization of the blackout period limits financial transactions in light of insider information.

Blackouts in Retirement Plans

Periodic blackout periods are common in employee retirement plans . During the blackout period, employees who invest in the company retirement or investment plan can't make alterations to their plans, like changing the allocation of their money, and will be unable to make withdrawals.

The timeframe for a blackout isn't limited by law. In the event that the blackout is expected to last for over three days, a notice of it must be given to the employees. Notwithstanding, the blackout period can last for a really long time or even months.

A blackout period might be imposed on the grounds that a plan is being rebuilt or altered. It allows the fund managers an opportunity to perform essential maintenance on their funds, including accounting and periodic survey. The blackout period prevents employees from rolling out major improvements to their investment options in view of data that may before long be obsolete. Directors and executive officers are additionally prevented from purchasing or selling their own company securities during the blackout.

The Securities and Exchange Commission (SEC) causes the rules that to safeguard employees during blackout periods.

Blackouts in Stock Transactions

The primary purpose of blackout periods in publicly traded companies is to prevent insider trading . A few employees who work for publicly traded companies may be subject to blackout periods since they approach insider data about the company.

The SEC prohibits employees, even top company authorities, from trading in view of company data that has not yet been disclosed. That is the reason publicly traded companies could uphold blackout periods at whatever point insiders might approach material information about the company, like its financial performance.

For instance, a company might impose a blackout period each quarter for a certain number of days before the release of a earnings report . Different events that can trigger a blackout period incorporate mergers and acquisitions (M&A), the up and coming release of another product, or even the release of an initial public offering (IPO). In each case, insider information would give an unfair advantage to the employee.

Blackouts in the Financial Industry

Starting around 2003, analysts have been subject to a blackout period that preclude them from distributing research reports on companies taking part in IPOs before they start trading on the open market and for as long as 40 days later. In this case, the blackout rule is planned to prevent financial analysts from satisfying any undisclosed marketing job in the IPO.

Blackout Period Example

On the off chance that a company directing a pension fund is shifting from one fund manager to one more at an alternate bank, the cycle would cause a blackout period. The blackout would give the firm opportunity to make the progress starting with one fund manager then onto the next while limiting the impact on employees who rely upon their retirement contributions.

• A blackout period is a transitory interval during which access to certain activities is limited or denied.
• A blackout period for an employee retirement plan briefly prevents participants from changing their plans.
• The primary purpose of blackout periods in publicly traded companies is to prevent insider trading.

Quiet Period

A type of blackout of information period enforced regarding communications from publicly-traded companies

What is a Quiet Period?

A quiet period refers to, essentially, a blackout of information time period for communications from publicly traded companies, a practice that is required by the Securities and Exchange Commission (SEC) in the United States.

So-called “quiet periods” actually exist in reference to two situations for companies that issue public stock shares. The first type of quiet period is one that is applied during the time frame when a company is going public, offering shares for the first time in an initial public offering (IPO) .

The second situation when a quiet period is enforced applies to all the companies whose stock shares are already being publicly traded. Specifically, it pertains to the time periods when publicly traded companies’ quarterly earnings reports are published.

• A “quiet period” refers to, essentially, a blackout of information time period enforced in regard to communications from publicly-traded companies.
• The Securities and Exchange Commission (SEC) enforces quiet periods in relation to both IPOs and the release of quarterly earnings reports.
• The purpose of quiet period regulations is to help ensure that all potential investors have equal access to information about a publicly-traded company, and that no investor obtains an unfair advantage by receiving relevant information prior to its release to the general public.

Quiet Periods with IPOs

In reference to an IPO, the quiet period is designated as that period of time between the date when a company files its IPO registration with the SEC and the date on which the IPO actually occurs, the date when investors can first purchase the company’s public stock offering. Technically, the quiet period is enforced through a period of 40 days beyond the IPO date.

During that time frame, the company going public is prohibited from disseminating any information that is (a) not contained in the company’s registration filing with the SEC – which is available publicly on the SEC’s website – and (b) that might reasonably be expected to impact the IPO or the price that the stock initially trades at.

The 40 days past the IPO date rule is basically to allow the stock to get established in the financial markets and for its price to naturally “settle down.” IPOs are often accompanied by extreme volatility and severe price swings up and/or down when a stock first begins trading. After the stock has been trading for a period of several weeks, investors on both sides of supply and demand have usually reached a consensus on the stock’s reasonable value and established a moderately sized trading range for the stock.

The purpose of the quiet period is threefold:

1. First, it gives the SEC ample time to review the company’s prospectus filing and verify that the information contained in it is accurate.

2. It helps ensure a level playing field for all potential investors in the new stock issue.

3. It prevents companies from inflating, or “pumping up,” the price of their stock in an attempt to maximize their financial gains from the IPO.

Any communication of additional information, not contained in its prospectus , by the company during the quiet period is basically considered to be a violation of insider trading laws, and can, therefore, carry severe repercussions for the company and for the individuals responsible for communicating the information.

The quiet period prohibition applies to anyone connected with the company – that includes founders, members of the company’s board of directors , and all company employees. It additionally applies to anyone connected with the IPO.

For example, employees of the investment bank that is managing the IPO for the company would also be subject to the quiet period prohibition, as would employees of an accounting firm that the company hired to certify its financial statements for the IPO.

Earnings Reports Quiet Periods

The second type of quiet period is one enforced around the time when a publicly traded company releases its quarterly earnings reports. Earnings reports often have a substantial impact on a stock’s market price when they are initially released. Large deviations from the earnings projections of market analysts can cause a sharp rise or dramatic decline in a stock’s price.

Thus, the SEC again has a vested interest in trying to assure a level playing field, that no investors have an advantage, or be at a disadvantage, due to advance information about earnings reports leaking out to some people early.

The earnings report quiet period is applied to the time frame that covers the four-week period that precedes the end of a company’s fiscal quarter and extends to the actual date and time of the earnings report being released (most companies release their earnings reports within a month or two of the end of the quarter).

Again, the quiet period prohibition is essentially enforced against anyone who works for the company or who is connected to the company in a manner that may provide them access to inside information – that is, material, non-public information.

The SEC has laid down very specific rules regarding the dissemination of information contained in quarterly earnings reports. A company must adequately publicize its upcoming earnings report and the accompanying analyst meeting or conference call to discuss the report by doing all of the following:

• Issue a press release regarding the earnings report through PR Newswire
• Copy the press release to the SEC via Form 8-k
• Publish information about the earnings report release and discussion conference call on its company website

Additionally, when an analyst meeting or conference call is held where company executives discuss the earnings report, the meeting must be broadcast via the internet and/or by conference call, with access freely available to any and all interested parties.

Because of the earnings report quiet period regulations, company CEOs and board members often simply do not grant any interviews to financial journalists or market analysts during the quiet period. It is important to avoid even the possible appearance of communicating insider information, and absolute silence is the practice most likely to ensure compliance with quiet period regulations.

Thank you for reading CFI’s guide on Quiet Period. To keep learning and advancing your career, the following resources will be helpful:

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Structured notes and issuer quiet periods

Most issuers establish a “quiet period” (also called a “blackout” period) prior  to the release of potentially sensitive information and material non-public information, such as quarterly earnings announcements. During this period, they will refrain from offering securities, particularly in registered offerings or to retail investors.

An issuer may impose a blackout period if it is aware of other information that, once announced, may have a significant effect on its stock price or credit spreads. These events could include an acquisition, a disposition, or the entry of an order or judgment by a court or a regulator, etc. During the blackout period, the issuer may be deemed to be in possession of material nonpublic information about the recently completed quarter, for example, that might affect an investor’s decision regarding an investment in the issuer’s securities.

Usually, the issuer’s treasury group (or the group that is responsible for funding), together with counsel supporting that group’s functions, determines the terms of its blackout policy, which may also be discussed with and approved by the issuer’s board of directors or other senior management. Generally, the treasury group and its counsel are the stakeholders that are most familiar with the issuer’s funding plans, and therefore can communicate with all of the relevant business groups about the blackout policy.

Traditional Blackout Periods

In the United States, there is no bright line rule regarding the length of an issuer’s blackout period. Some bank and bank holding company issuers adopt a blackout policy that, for example, commences two days before the quarter-end and ends at the commencement of trading on the day following the issuance of the earnings release. Over time, however, many issuers have reviewed their blackout policy and determined that, given the relatively easy access to current information, it  may be appropriate to end the blackout period immediately following the earnings release. There is some variation in practice in this area.

Refinements to Blackout Periods

Some issuers that frequently access the public markets usually have formulated more detailed blackout policies that distinguish among the types of securities offered.

For example, many issuers will adopt an abbreviated blackout policy in respect of certain structured products, whether in the form of notes, certificates of deposit, or “certificates” and warrants, in which the payout on the instrument depends on the performance of a reference asset. For example, for structured securities, they may impose a blackout that begins two days prior to the date of the earnings release and ends either after earnings are announced, or on the business day following the release.

The risk of offering securities outside of the traditional blackout period is that the issuer may be deemed to be in possession of material nonpublic information about the recently completed quarter that would affect an investor’s decision whether to purchase the structured securities. However, many market participants take the view that this risk is mitigated with respect to structured securities because:

• Investors in structured securities will focus principally on the return on the securities, which is linked to an external reference asset. As a result, information about the issuer’s business, operations, capital structure and financial condition is not typically as material to an investor in these products as it would be for an investor in other securities of the issuer where the value is driven by the issuer’s performance, except to the extent that such information materially increases the likelihood that the issuer would be unable to meet its obligations as they come due. For example, if the issuer had reason to believe that the rating of its debt securities would be reduced due to the information in its upcoming earnings release, that information would likely be more material, since structured securities are priced in part based on the relevant issuer’s credit rating. However, if the information in its earnings release is more typical in nature, and consistent with analyst and market expectations, this information is much less likely to have an impact on the value of the issuer’s structured securities.
• The risk is further mitigated with respect to structured securities that have shorter maturities. The issuer’s ratings usually have less impact on the pricing of shorter term notes.
• Generally, structured securities do not have a large secondary trading market in which their pricing varies to a significant extent based upon news announced by the issuer. Usually, the market for structured securities is largely illiquid, and depends upon the willingness of the issuer’s affiliated broker-dealer to make a market in these securities. Accordingly, the issuer’s news announcements do not tend to have as great an impact on the prices of structured securities in the secondary market as they do for the issuer’s more liquid securities.

Pricing and Settlement

Typically, an issuer also will specify in its blackout policy the issuer’s approach to the launching, pricing and closing of an offering of its securities. Some issuers prohibit the pricing and closing of securities during the blackout period, even if the marketing of the securities occurred prior to the commencement of the blackout.

Other issuers adopt more nuanced policies. If the issuer has a bifurcated blackout policy with a shorter period applicable to structured securities, the issuer might consider adopting some guidance or setting parameters as to the steps that occur around the relevant period.

For example, will the issuer permit the marketing of structured securities, provided that the securities price and close after the blackout period? Will the issuer permit securities offerings to straddle the blackout period (i.e., trade date prior to blackout with close after blackout)? Or will that be permitted only with a reconfirmation of trade terms? Will the issuer permit any settlement during the blackout period?

Under U.S. securities laws, the most relevant point in time during the offering is the pricing date, and not the closing date. In connection with its Securities Offering Reform rules, which became effective in December 2005, the SEC set forth its analysis that the critical time for determining the accuracy of a prospectus is the time at which a contract to purchase the securities is formed; that is, the pricing date. After the pricing date, the investor has already made its investment decision, and accordingly, it is not appropriate to base an insider trading claim on information that came to the issuer’s  attention after that time. As a result, in the United States, the focus is typically on the information that is available on the date of pricing. Accordingly, some issuers of structured notes into the United States permit structured notes to close (settle) even during the shortened blackout period, because the investors have made their investment decisions prior to that time.

Blackout Period Discretion and Unusual Circumstances

A blackout period should not be immutably set in stone. Even after determining and documenting a blackout policy, the issuer should have the ability to instruct the business units to halt the marketing or issuance of securities at any time as needed. For example, the issuer may identify a concern regarding material non-public information, or it may plan to make a significant news announcement. The issuer and its underwriters will need to exercise caution in implementing a blackout period of this kind - they do not want to signal to the market in this manner that (good or bad) news is about to come forth.

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Securities Offerings During Blackout Periods and Following a Quarter-End

Richard J. Sandler is a partner at Davis Polk & Wardwell LLP and co-head of the firm’s global corporate governance group. This post is based on a Davis Polk client memorandum.

Many companies voluntarily impose a “blackout period” beginning around the time a quarter ends and continuing through the quarter’s earnings announcement or subsequent 10-Q or 10-K filing. Although the company’s directors and officers are therefore barred by company policy from trading during this period, it may nevertheless be possible for the company or its major stockholders to complete a securities offering on a public or private basis. The existence of a company-imposed blackout period does not, as a legal matter, prevent the company or a major stockholder from selling securities as long as the company is able to meet its duty of disclosure.

This post discusses what factors company management and their underwriters should consider when contemplating a securities offering during a blackout period. We focus particularly on US companies that are already subject to SEC reporting requirements and that are up-to-date with their filings — IPO companies, companies not subject to SEC reporting and companies that are behind in their SEC filings will have additional matters to consider.

A note of caution is appropriate — this post offers a blinking-yellow light, not a green light. In many cases the best course of action will be to schedule the offering after the 10-Q or 10-K is filed. Nevertheless, in a period of rapidly shifting investor receptivity to new issues, a company and its underwriters may decide that the balance of considerations favors moving more quickly to market.

What is a blackout period and why do companies impose them?

For a US public company that is timely in its SEC reports, there are no mandated blackout periods (with one exception, discussed below). The SEC regulatory scheme generally provides that a company that is timely with its SEC reports can always use those SEC reports as the basis for its public disclosure and offer securities freely.

There is one exception to this rule: for a company doing an offering that is not off of an effective shelf, the SEC generally does not permit the company to rely on its public disclosure beginning 45 days after yearend until its 10-K is filed, although it will allow the company to do so if it has generated a profit in recent years and expects to report profits for the just-completed year.

However, the SEC prohibits insiders from trading based on any material non-public information (or “MNPI”) they have obtained from the company. Accordingly, insiders who wish to sell securities typically require clearance from their general counsel before trading to ensure they don’t possess MNPI. To protect insiders from regulatory investigations and to avoid forcing the general counsel to make a call when the facts may be developing rapidly, most companies impose a blackout period during which insiders cannot trade, and this period often starts at a time around quarter-end just before the company and its insiders are likely to possess MNPI. But, importantly, this is a prophylactic measure, not a hardand- fast rule imposed by the SEC.

Can an offering be completed during a blackout period?

It may be possible to complete a securities offering during a blackout period when:

• management has enough information about the current (or recently ended) quarter to be able to predict with a fair degree of confidence what the company’s reported results are likely to be,
• management has a good track record of being able to judge its anticipated results at similar points in the information-gathering and reporting cycle, and
• management’s expectations for the quarter, and future periods, are at least in line with “the market’s” expectations as well as with management’s own previously announced guidance (if any) — or if not, the company and its underwriters conclude that the deviation is not material (most likely to occur in a debt offering), or the company is willing to “pre-release” its current expectations prior to the earnings release. (Of course, as with an offering conducted outside a blackout period, it is also necessary to make sure there is no other MNPI (such as a significant pending M&A transaction), or if there is, to disclose it publicly.)

Management’s information . The inquiry into management’s current information should normally include careful diligence focusing on the “known knowns” and the “known unknowns,” and an effort to quantify the “known unknowns” is usually essential. The “unknown unknowns,” of course, cannot be quantified, and for this reason all participants in the transaction must understand and accept that there is some quantum of risk — reputational as well as legal — that cannot be excluded when conducting a securities offering in the period leading up to the company’s formal announcement of results. Some companies have systems (such as flash reports) to track performance weekly, or even daily, and have a strong grasp on what is happening on a near real-time basis. Other companies may experience more of a lag before negative information or a developing negative trend becomes apparent to management — the “unknown unknowns” would be more of a concern here.

Management’s track record . An assessment of management’s track record can sometimes be informed by comparing the company’s earnings or other forward-looking guidance to its reported results for the last several quarters, in order to get a sense of whether the company has a history of “underpromising and overperforming,” or vice versa. Not all companies provide public guidance, however. For companies in either camp, it is usually helpful to have a working group discussion focusing on where the company is in its information-gathering and reporting cycle, and whether it is currently at a point, based on past experience, to be able to forecast results with some degree of accuracy.

Market expectations . Market expectations are not always easy to discern, and there is no single way to go about determining them. Many working groups will start with services such as Thomson Reuters First Call, or another service that aggregates the published views of securities analysts, in order to determine the “consensus” view for the current (or recently ended) quarter, the full year and sometimes the next year. Because the consensus is usually reported as an average (whether of estimates of future revenues, earnings, EPS or EBITDA, or other metric closely followed in the company’s industry), it is usually helpful to look beneath the consensus to see whether it is being driven up or down artificially by an analyst or two who may be an outlier. Likewise, if the company will meet market expectations largely because of one or more factors that the market is unaware of, or may be aware of but is likely to discount (such as a one-off or non-operating gain), and the company would be below expectations if its results were based only on the factors normally incorporated in the analysts’ models, the working group may decide that the company is not clearly and comfortably meeting market expectations despite a superficial similarity.

Because most analysts do not update their published views more frequently than quarterly, sometimes the “consensus” may be outdated. As an example, if the company is a steel manufacturer and its earnings will deviate from consensus simply because steel prices have dropped since the analysts last published, the working group could conclude that investors will not be surprised by the deviation. In similar situations, the working group should try to understand whether the reason the company is likely to deviate from consensus is something that ought to be apparent to the investing public, or is instead based on information not available to the market.

Beyond looking at the numbers, the company and its underwriters should consider any other available information, such as:

• the company’s understanding of where investors and analysts are currently focused,
• the views of coverage bankers involved in the transaction,
• recent announcements by industry peers or others that may be recalibrating market expectations, and
• the views of any sell-side analysts who are “over the wall” — i.e., an analyst employed by an underwriter involved in the transaction who has been informed about it. Because an analyst who is brought over the wall is usually prohibited from speaking to investor clients about the company until the transaction has been publicly announced, it is generally not customary to bring analysts over the wall until shortly before announcement.

A company that does not provide public guidance may reasonably ask why market expectations about the company’s upcoming earnings announcement should be relevant to the question of whether it can conduct a securities offering. The issue is whether or not investors are likely to be disappointed when the company announces earnings. Even if the company does not provide guidance, the market still has expectations; the fact that those expectations were not informed by the company’s own guidance is a nuance that may be lost on the disappointed investors (and lawyers who specialize in filing lawsuits on their behalf).

What if management’s expectations are not in line with the market’s?

If management’s expectations for the quarter are not in line with (or better than) the market’s, many companies will decide to put off a securities offering until after earnings are announced or the 10-Q or 10-K is filed. For a company that is nevertheless prepared to proceed, the company and its underwriters should agree on a strategy for recalibrating the market’s expectations. This involves two decisions: what to say, and how to say it.

What to say . This, of course, turns primarily on the facts. Frequently, the issue is simply a non-trivial risk that one or more of the company’s reporting metrics will be lower than the market’s current expectations. Sometimes this can be solved simply by disclosing or highlighting a fact or trend (such as a slowdown in orders from a major customer) that the market has not previously considered or that analysts appear to be ignoring. Often, the company cannot say precisely what it will report in a few weeks, but is fairly certain that the market’s expectations are above the range of reasonably likely outcomes; in this case it may be appropriate to disclose that range.

How to say it . Because of the sensitive nature of information about a gap between management’s and the market’s expectations, the communication strategy should take into account the requirements and spirit of Regulation FD — even when there is a technical Regulation FD exemption, as may be the case with a public offering. Thus, companies will often announce the new information in an 8-K filed immediately prior to launching the transaction. If the quarter-end has passed, disclosure under Item 2.02 may be needed; otherwise an Item 7.01 8-K may suffice — but in either case the 8-K itself would not usually be incorporated into the prospectus or other offering document for the transaction. Whether to also include the information in the offering document and/or road show materials is a subject for workinggroup discussion. When the information includes forward-looking statements, the working group may conclude in some situations that it is preferable to leave it out of the offering materials.

What else should the working group consider?

Reputational risks . All offering participants — the company and company management as well as the underwriters — risk damage to their reputations if an offering is conducted and the company’s subsequently reported results disappoint investors in the offering. This is the case whether or not the company felt it needed to disclose new information in order to reset the market’s expectations.

Legal risks . A materially disappointing earnings release issued after an offering can be an invitation for a lawsuit, which of course is distracting and potentially costly even if not well-founded. The working group should bear in mind that whether there’s a “material” difference between the company’s offering-related disclosures and its subsequently announced results is a question that will be judged with hindsight — based at least in part on how the market reacts when the results are made public.

On a related note, the company’s accountants generally will not be in a position to provide “comfort” with respect to ranges or projections, and may be unable to provide comfort with respect to periods of a few weeks before and after the quarter-end. Similarly, prior to filing the 10-Q or 10-K, the company’s accountants are generally unable to provide a formal review or audit of financial information for the quarter or year. In a subsequent lawsuit, therefore, the offering participants may not have the full benefit of an accountant’s comfort letter to help establish their due diligence defense. Underwriters will therefore often seek to document their diligence of ranges, projections, earnings-release information and other financial information about the quarter through alternative means, such as by obtaining a CFO certificate attesting to numbers or ranges included in the offering document, in addition to the company’s representations and warranties contained in the underwriting or purchase agreement. Whether or not alternative documentary evidence of diligence is available, close attention to the diligence defense is a good idea, including a robust process of vetting management’s expectations and underlying assumptions for the quarter and future periods with the participation of the working group.

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Does a unit shift report “blackout” period improve patient safety?

Olmstead, John MBA, MSN

John Olmstead is the director of surgical and emergency services at The Community Hospital in Munster, Ind.

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Things to Consider During Blackout and Quiet Periods

Amongst the many rules and considerations that surround investor relations disclosure and trading practices, blackout and quiet periods are very important policies to implement and understand.

Blackout periods are legally-mandated timeframes when any corporate insider is forbidden to trade in the company’s securities.  These restrictions exist to help reduce the risk of insider trading by parties who have access to non-public information. Blackout periods can be broken down into two main categories:

• Quarterly blackout periods apply to all insiders and employees of a company during periods when financial statements are being prepared but have not yet been publicly disclosed. As a rule, these blackout periods begin the first day following the end of a quarter or whenever preliminary financial statements for the quarter are available. The blackout period ends two days after quarterly financial results have been publicly disclosed.
• Blackout periods may also be occasionally mandated due to special circumstances within a company that call for insiders to be precluded from trading in its securities.

A quiet period is an interval in time when corporate insiders need to limit their interaction with the public due to the insiders’ knowledge of material information. Typically, this applies to a period when management has knowledge regarding company news that has not been announced to the public.  This can be broken down further into two general categories:

• IPOs and Financings. These quiet periods were established and are regulated by the SEC to prohibit analysts who are associated with the deal ( i.e. who work for the investment bankers on the deal) from writing research reports that could influence the stock price during a defined period of time.
• Quarterly Earnings and Material News . The period between the end of a financial quarter and the day that quarterly results are released to the public, as well as a period before material news about the company is going to be disclosed.

Quiet periods exist in order to avoid the potential of a company selectively disclosing – or appearing to disclose – non-public information.  The intention of blackout periods is to prevent any corporate insiders from making comments – or even unintentional implications – that would cause investors to alter their investment positions before any information is disseminated to the public.

While the laws around quiet periods for IPOs and financings are clear-cut, rules around the quarterly quiet period can be a bit of a grey area, and – unlike for IPOs and financings – the SEC has not listed any specific regulations for it. Management and IR teams need to put policies into place during these periods of time during which investors will likely call to see how things are going or how the quarter looks, with the intention of getting some advance insights before the earnings release. To avoid being put into a compromised position, companies and management teams should implement specific policies for quarterly quiet periods. Things to consider:

• When should the quiet period start? There is no standard policy for when a quiet period should start. If management knows during month three of the quarter what the results look like, perhaps starting the quiet period earlier is more appropriate. Timing and knowledge of results is very specific to each company.
• What will be the policy regarding communications? For example, the company can decide not to participate in any calls or make any outgoing calls, or any other policy deemed appropriate. Completely shutting down all communication could be unfavorably looked upon by investors.  Additionally, if the quiet period precedes a big news announcement, total silence may alert investors that something big is about to happen. The company needs to work within its comfort zone to strike a good balance of communication.
• Will the company attend conferences? Again, completely cutting off the company from all exposure can impact the daily operations and progress of the team. This should be considered when implementing policies regarding conferences and quiet periods, as conferences often occur during periods that are within the timeframe of many quiet periods.  Companies have many options when it comes to attending conferences during quiet periods, including not attending at all, attending but not scheduling one-on-one meetings, or choosing to pre-release earnings so that they can be discussed openly.

Conclusion There are no standard policies or rules about quarterly quiet periods for public companies to follow. Each company should choose a policy that is right for its specific operations and comfort level, as well as adhere to it on an ongoing basis.

Debbie Kaster, Managing Director

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Racial and Ethnic Inequalities in Household Wealth Persist 

Rajashri Chakrabarti, Natalia Emanuel, and Ben Lahey 

Disparities in wealth are pronounced across racial and ethnic groups in the United States. As part of an ongoing series on inequality and equitable growth, we have been documenting the evolution of these gaps between Black, Hispanic, and white households, in this case from the first quarter of 2019 to the fourth quarter of 2023 for a variety of assets and liabilities for a pandemic-era picture. We find that real wealth grew and that the pace of growth for Black, Hispanic, and white households was very similar across this timeframe—yet gaps across groups persist. 

Data Sources  

For this analysis, we rely on the quarterly demographic wealth distributions published in the Federal Reserve Board’s Distributional Financial Accounts (DFA), which are estimated using microdata from the Survey of Consumer Finances (SCF), and aggregate financial data from the Fed’s Financial Accounts series. Due to sample size concerns, we have omitted Asian and Pacific Islander households and households from smaller groups. Hereafter, references to the “study population” refer to Hispanic, non-Hispanic Black, and non-Hispanic white households. We define wealth as net worth (assets minus liabilities). 

We had previously written on racial and ethnic differences in wealth in a February 2024 blog post (as well as differences by age ) and found a decline in the aggregate real wealth of Black households after 2019. However, some questions about the data, related to the sample of Black households, came to our attention after that post and we decided to revisit the analysis at the household level rather than the aggregate level.

At the beginning of 2019, Hispanic and Black households constituted 11 percent and 16 percent of households in the study population, respectively, yet they held just 2.7 percent and 4.9 percent of total wealth of that population. Meanwhile, 73 percent of households in our sample were white and held 92.4 percent of the wealth. In 2019 dollars, the average Black household held $253,000 in wealth, the average Hispanic household held $205,000, and the average white household held $1.06 million. The data allow us to calculate wealth estimates for average households by group but not for median households, so we report only averages.

Real Wealth Grew Across Groups  

We find that growth in real wealth per household was substantial and very similar across Black, Hispanic, and white households over the 2019-23 period. We calculate real wealth growth in 2019 dollars using the race/ethnicity-specific price indices presented in the  inflation inequality  section of the  Equitable Growth Indicators  (EGIs) series. The chart below shows that cumulative growth in the real wealth of white households since 2019 marginally outpaced growth in the real wealth of Black and Hispanic households. The cumulative growth in average real wealth between 2019:Q1 and 2023:Q4 was 26 percent for white households, 24 percent for Black households, and 22 percent for Hispanic households.

Real Average Household Wealth Growth Since the Pandemic Was Similar Across Racial and Ethnic Groups 

Similar changes in wealth across racial and ethnic groups hide underlying differences in asset growth rates and the types of assets favored across groups. Black, Hispanic, and white households invest their total assets in financial and real estate assets at different rates: in total, assets held by white households in 2019:Q1 were about 73 percent financial and 23 percent real estate, Black household assets were about 67 percent financial and 26 percent real estate, and total Hispanic assets were 51 percent financial and 39 percent real estate. The remaining assets are held in consumer durables and cash deposits.

Growth by Asset Type  

Financial asset prices rose sharply over our study period and did not decline significantly after policy rate hikes during this time. Real financial assets held by white households grew by 21 percent from 2019:Q1 to 2023:Q4, outpacing real financial asset growth of Black and Hispanic households by 13 and 18 percentage points, respectively (see chart below). Real financial wealth for the average Hispanic household had declined relative to 2019:Q1 as of the third quarter of 2023 but recovered to achieve cumulative growth of 2 percent by 2023:Q4. Importantly, growth in the value of households’ holdings of an asset type is influenced by both changes in asset prices and changes in households’ investment decisions. Meanwhile, household decisions were potentially shaped in response to greater disposable incomes granted by pandemic transfers. However, the data do not allow us to distinguish between these factors. The different real growth rates estimated across these groups are also influenced by our use of demographic price deflators, but the observed disparities are just as pronounced in nominal terms, as seen in our wealth Equitable Growth Indicators where we present both nominal and real wealth. Households also hold different asset and liabilities within the broad categories we address here and those differences can also cause differential growth rates. A full set of differential wealth growth charts are available in both nominal and real terms by racial and ethnic groups, age groups, education groups, income percentiles, and wealth percentiles on our EGIs site.

White Households Led Financial Asset Growth While Black Households Led Real Estate Growth 

Meanwhile, the real estate wealth of the average Black household grew by 62 percent, 24 percentage points above the 38 percent real estate growth captured by both white and Hispanic households. While Black households led real estate asset growth by a significant margin, Black households also saw rapid growth in mortgage and consumer credit liabilities and therefore experienced similar growth in net wealth to white and Hispanic households. Since 62 percent by far exceeded average home price increases during this period, some of the increase in real estate wealth is likely owing to increases in homeownership of Black households. Below we explore the reasons behind differential growth in financial assets across groups.

The chart below depicts the financial asset classes each racial group held in 2019:Q1 and 2023:Q4. All three groups allocate similar shares of their financial asset portfolios to “other assets” (composed of insurance payouts, mortgage assets, and other small, miscellaneous assets), but exhibit differences across the other categories. More than 60 percent of Black households’ financial wealth is in pensions (which includes both defined benefit and defined contribution pensions) and less than 20 percent is invested in private businesses, corporate equities, and mutual funds. Meanwhile less than 30 percent of white households’ financial wealth is invested in pensions and almost 50 percent is in businesses, equities, and mutual funds. Hispanic households’ financial asset allocations are like those of Black households but with slightly more investment in businesses, equities, and mutual funds and slightly less in pensions. White households had the most exposure to businesses, equities, and mutual funds and experienced much faster financial asset growth since 2019:Q1 as much of the period was associated with substantive appreciation of these specific assets.

Financial Asset Portfolios Differ Starkly by Race 

To conclude, the real wealth of Black, Hispanic, and white households grew at similar rates since the onset of the pandemic and the wealth gaps seen in the pre-pandemic period persist. We will continue to monitor changes in the wealth distribution as monetary policy and the economic environment evolves.

Rajashri Chakrabarti is the head of Equitable Growth Studies in the Federal Reserve Bank of New York’s Research and Statistics Group.  

Natalia Emanuel is a research economist in Equitable Growth Studies in the Federal Reserve Bank of New York’s Research and Statistics Group.

Ben Lahey is a former research analyst in the Federal Reserve Bank of New York’s Research and Statistics Group.

How to cite this post: Rajashri Chakrabarti, Natalia Emanuel, and Ben Lahey , “Racial and Ethnic Inequalities in Household Wealth Persist ,” Federal Reserve Bank of New York Liberty Street Economics , June 28, 2024, https://libertystreeteconomics.newyorkfed.org/2024/06/racial-and-ethnic-inequalities-in-household-wealth-persist/.

You may also be interested in:

How Are They Now? A Checkup on Homeowners Who Experienced Foreclosure

Wealth Inequality by Age in the Post‑Pandemic Era

Equitable Growth Indicators (EGIs)

Disclaimer The views expressed in this post are those of the author(s) and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author(s).

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