Lock-up period
Also: lock-up period, lockup, IPO lockup, lock-up agreement
A contractual restriction after an IPO or direct listing that prevents insiders from selling shares for a set period, typically 180 days.
A lock-up period is a contract between the IPO underwriters and the company’s insiders that prevents insiders from selling, transferring, or hedging shares for a defined window after the offering. The standard is 180 days, though it can extend to 365 days or include staggered releases. Some IPOs now incorporate early-release tranches at 60 or 90 days if the stock trades above a threshold. The purpose is to reduce supply overhang during the stabilization period.
Example: a company prices an IPO at $28. Insiders sign a 180-day lock-up. The stock rises to $64 by day 90, tempting employees to sell. No sales are allowed. At day 180, the stock is at $42. Insiders can now sell, but they have missed the peak. A 10b5-1 plan adopted post-lockup can smooth the exit across subsequent quarters.
Common mistake: waiting until day 181 to start thinking about diversification. The plan should be set before the lock-up expires, with a 10b5-1 schedule ready to execute when the window opens.
Lock-ups matter at IPO timing, at secondary offerings, and at acquisitions of public companies where the buyer often imposes new lock-ups on retention shares.