Much of the regulation that we have in the financial markets (and other markets for that matter) predates the Internet. While there has been the occasional patch here and there, too many anachronistic concepts remain that should simply be eliminated entirely. My favorite example is the “quiet period." As even the SEC notes on their own web site, the quiet period isn’t even found in federal securities law. Instead, as this blast-from-the-first-bubble-past article from Wired describes, the quiet period was born out of the Securities Act of 1933 (which was meant to avoid a repeat of the crash of 1929).
The idea behind the quiet period was essentially that once a company had filed a prospectus to go public it shouldn’t be able to provide new information that’s not in the prospectus until it has actually gone public. That may have made some sense at a time when a prospectus was something printed, bound and then distributed to the world. It makes zero sense today. If the company has additional information it can add this information to the SEC filing in near real time or simply even post it to its own web site in an easily accessible format (there should be a simple requirement that such information cannot be removed, only further amended).
The quiet period today is bad for both the company and the average investor. It’s bad for the company by opening the company up to attacks from competitors via the press to which the company cannot respond no matter how baseless or distorted the allegations are. We have seen this happen in a number of recent quiet periods. It’s also bad for investors as additional information disseminated to everyone would be useful. Instead, that information tends to be trickled out only to a few institutional investors during a so-called road-show.
Net it seems that the only people who are benefiting from this rule are IPO lawyers, investment bankers and large institutional investors. So much for the consequences of trying to protect the small investor and not leveraging the Internet. Instead of a road-show I believe companies going public should provide a livestream together with an ability to queue up questions over chat. The stream would be archived along with the questions. Wonder how long it will take for regulators to embrace the Internet for truly public information access for IPO candidates.
