Gun jumping, or jumping the gun, is a term used in the context of securities regulation and financial markets to describe premature actions or trading based on non-public information. It typically refers to actions that occur before relevant information has been officially disclosed to the public. This practice is considered illegal and can lead to regulatory sanctions and legal consequences.
Two common forms of gun jumping are:
1. **Soliciting Orders Before SEC Approval:**
– In the context of initial public offerings (IPOs), gun jumping occurs when individuals or entities start soliciting orders to buy shares of a new issue before the registration of the IPO has been approved by the Securities and Exchange Commission (SEC).
– Companies planning to go public must follow a regulatory process that includes filing a registration statement with the SEC. Until the SEC reviews and approves the registration, it is illegal to solicit orders for the purchase of the securities.
2. **Trading on Non-Public Information:**
– Gun jumping can also involve buying or selling stocks based on material information that has not yet been disclosed to the public. This could include information about financial performance, mergers and acquisitions, regulatory decisions, or other significant events.
– Trading on non-public information is a violation of securities laws, particularly regulations related to insider trading. Insiders, such as company executives and employees, are prohibited from using undisclosed information for personal gain or sharing it with others who might trade on it.
Penalties for gun jumping violations can be severe and may include fines, civil enforcement actions, disgorgement of profits, and even criminal charges for individuals involved in the illegal activities. Securities regulators, such as the SEC, actively monitor markets to detect and prevent instances of gun jumping to ensure fair and transparent trading practices.
It’s important for individuals and entities involved in financial markets to adhere to securities regulations and to refrain from engaging in activities that could be construed as gun jumping or insider trading. Compliance with these regulations helps maintain the integrity of financial markets and protects investors’ interests.