Lock-up period
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A lock-up period, also known as a lock in, lock out, or locked up period, is a predetermined amount of time following an
Lockups are designed to prevent insiders from liquidating assets too quickly after a company goes public. When employees and pre-IPO investors initially get their shares or options, they sign a contract with the company that typically prohibits trades for the first 90–180 days after a future IPO. When the company is ready to go public, the underwriting bank then reaffirms the existing agreements in new contracts. This helps to ensure the market will not disproportionately increase the supply, which drives prices downward. While lockups used to be simple—usually lasting 180 days for everyone—they have become increasingly complex.[1]
Usually employees and early investors want shorter lockups (so they can cash out sooner) while the underwriting banks want longer ones (to keep insiders from flooding the market and sinking the share price). The company is often somewhere in the middle—wanting to keep employees and investors happy but not wanting it to look like insiders don't have faith in it.
References
- ^ "Explaining Facebook's Epically Complex Stock Lockup". Businessweek. 2012-08-22. Archived from the original on August 24, 2012. Retrieved 2013-02-16.