Everyone has heard of blackout dates when it comes to claiming frequent flyer miles, but the term blackout period also refers to other territory. A blackout period defines any temporary period throughout which access to something is denied or limited.
In the investment world this term usually refers to a waiting period related to contracts, business actions and policies. For example, when you purchase or sell a fund you may have to wait before you can do so again. Another case might be if your pension plan has been restructured or changed by moving from one manager to another, you may have to wait out a blackout period before you can move your funds out. The primary goal of such periods is to prevent insider trading.
Some companies schedule regular blackout periods which may last for just a few days or even a couple of months. Employees are given fair notice in advance. These periods are often scheduled to coincide with the release of financial information about the company. That way, people who work within the company can’t make use of the information they have which isn’t available to others.
The fines for insider trading can be severe. The laws related to such misconduct were expanded after the Enron debacle. Companies must now give employees at least 30 days notice before any blackout period or explain why such information was delayed. If the company fails to honor the rules they can be fined $100 per participant for every day of the blackout period – a huge amount of money for a large company.