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ASX companies that use either the calendar year or July 1-June 30 year as their financial year are currently in blackout periods. What is the big deal about this?
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What is a blackout period?
A company blackout period is a designated timeframe during which the conduct of certain employees, particularly executives, is more regulated.
You’ll generally find two prohibitions:
- Making any trades on company stock or other securities.
- Commenting publicly or privately about the company’s financial results.
Additionally, they may also be prevented from engaging in activities related to their holdings outside of the company that could be considered insider trading.
This can be either voluntary or mandated by government regulations. In Australia, the ASX requires companies to have trading policies and these will typically provide for blackout periods between the close of books and the release to the market of the company’s actual results.
They won’t necessarily mandate not commenting, but companies will have their own policies in this regard. There may be blackout periods at other times, but these are entirely up to the company.
It is important to note that blackout periods usually end when audited results are released, not unaudited results. Furthermore, some companies use different financial years such as the New Zealand financial year (which starts on April 1) and they will have blackout periods to match.
Why have one?
The purpose of this restriction is to prevent insider trading and other illegal activity that might allow certain individuals to make profits off of non-public information.
Generally speaking, blackout periods are employed when there is a risk that non-public information will affect the market value of a security; this prevents investors from taking advantage of privileged knowledge before it becomes publicly available. Blackout periods can also be used to deter any attempts at influencing the direction of stock prices by certain parties in order to increase their gains or reduce losses on investments.
All of these can lead to significant penalties for individuals involved as well as reputational damage to the company.
What does it mean for investors?
So will it be a case of ‘don’t ask, don’t tell’ anything that is going on during the period? Not necessarily. You shouldn’t expect any correspondence with the company’s Investor Relations officials to be ignored. But they may not be able to tell you as much as they otherwise would.
Companies can and will provide guidance throughout the year and it is important to rely on this when approaching reporting season.
When companies are aware that results are likely to be materially different from previous guidance, they must update it – and that includes during the auditing period. And there is no provision for companies not to tell the markets of price-sensitive information ‘immediately’ just because there is a blackout period.
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