S&P 500   4,689.87 (+0.07%)
DOW   35,652.11 (-0.19%)
QQQ   398.20 (+0.09%)
AAPL   174.31 (+1.83%)
MSFT   331.75 (-0.95%)
FB   331.18 (+2.59%)
GOOGL   2,943.85 (-0.05%)
AMZN   3,519.18 (-0.12%)
TSLA   1,057.55 (+0.55%)
NVDA   318.09 (-1.91%)
BABA   126.55 (+0.80%)
NIO   34.91 (+5.40%)
CGC   11.14 (+4.70%)
AMD   144.91 (+0.04%)
GE   98.85 (+1.33%)
MU   85.57 (-0.30%)
T   23.18 (+0.43%)
F   19.88 (-0.40%)
DIS   153.25 (+1.62%)
PFE   51.33 (-0.75%)
AMC   33.15 (+6.80%)
ACB   6.69 (+4.86%)
BA   212.10 (+1.57%)
S&P 500   4,689.87 (+0.07%)
DOW   35,652.11 (-0.19%)
QQQ   398.20 (+0.09%)
AAPL   174.31 (+1.83%)
MSFT   331.75 (-0.95%)
FB   331.18 (+2.59%)
GOOGL   2,943.85 (-0.05%)
AMZN   3,519.18 (-0.12%)
TSLA   1,057.55 (+0.55%)
NVDA   318.09 (-1.91%)
BABA   126.55 (+0.80%)
NIO   34.91 (+5.40%)
CGC   11.14 (+4.70%)
AMD   144.91 (+0.04%)
GE   98.85 (+1.33%)
MU   85.57 (-0.30%)
T   23.18 (+0.43%)
F   19.88 (-0.40%)
DIS   153.25 (+1.62%)
PFE   51.33 (-0.75%)
AMC   33.15 (+6.80%)
ACB   6.69 (+4.86%)
BA   212.10 (+1.57%)
S&P 500   4,689.87 (+0.07%)
DOW   35,652.11 (-0.19%)
QQQ   398.20 (+0.09%)
AAPL   174.31 (+1.83%)
MSFT   331.75 (-0.95%)
FB   331.18 (+2.59%)
GOOGL   2,943.85 (-0.05%)
AMZN   3,519.18 (-0.12%)
TSLA   1,057.55 (+0.55%)
NVDA   318.09 (-1.91%)
BABA   126.55 (+0.80%)
NIO   34.91 (+5.40%)
CGC   11.14 (+4.70%)
AMD   144.91 (+0.04%)
GE   98.85 (+1.33%)
MU   85.57 (-0.30%)
T   23.18 (+0.43%)
F   19.88 (-0.40%)
DIS   153.25 (+1.62%)
PFE   51.33 (-0.75%)
AMC   33.15 (+6.80%)
ACB   6.69 (+4.86%)
BA   212.10 (+1.57%)
S&P 500   4,689.87 (+0.07%)
DOW   35,652.11 (-0.19%)
QQQ   398.20 (+0.09%)
AAPL   174.31 (+1.83%)
MSFT   331.75 (-0.95%)
FB   331.18 (+2.59%)
GOOGL   2,943.85 (-0.05%)
AMZN   3,519.18 (-0.12%)
TSLA   1,057.55 (+0.55%)
NVDA   318.09 (-1.91%)
BABA   126.55 (+0.80%)
NIO   34.91 (+5.40%)
CGC   11.14 (+4.70%)
AMD   144.91 (+0.04%)
GE   98.85 (+1.33%)
MU   85.57 (-0.30%)
T   23.18 (+0.43%)
F   19.88 (-0.40%)
DIS   153.25 (+1.62%)
PFE   51.33 (-0.75%)
AMC   33.15 (+6.80%)
ACB   6.69 (+4.86%)
BA   212.10 (+1.57%)

IPO Lockup Expirations

A lock-up on an IPO prevents major shareholders and company insiders from selling shares in the company for a specified number of days following an IPO to prevent the market from being flooded with too much supply of a company's stock. Following the expiration of the lock-up period, restrictions preventing a company's employees and other major shareholders from selling their stock are lifted. Lock-up expirations often coincide with a 1-3% drop in the company's stock because of the increased number of available shares in the company. More about lock-up periods.

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CompanyCurrent PriceExpiration DateNumber of SharesInitial Share PriceOffer SizeDate PricedIndicator(s)
JANX
Janux Therapeutics
$18.46
+3.9%
12/8/202111,400,000$17.00$193,800,0006/11/2021Gap Down
SBEV
Splash Beverage Group
$1.40
+1.4%
12/8/20213,750,000$4.00$15,000,0006/11/2021
TASK
TaskUs
$44.70
+6.2%
12/8/202113,200,000$23.00$303,600,0006/11/2021Analyst Report
WKME
WalkMe
$20.21
+7.3%
12/13/20219,250,000$31.00$286,750,0006/16/2021
MOLN
Molecular Partners
$14.73
+3.2%
12/13/20213,000,000$21.00$63,750,0006/16/2021
ALZN
Alzamend Neuro
$2.23
+4.2%
12/13/20212,500,000$5.00$12,500,0006/15/2021
CNVY
Convey Holding Parent
$6.77
+1.7%
12/13/202113,333,334$14.00$186,666,6766/16/2021
AOMR
Angel Oak Mortgage
$16.81
+0.3%
12/14/20217,200,000$19.00$136,800,0006/17/2021
ISPC
iSpecimen
$12.38
+1.2%
12/14/20212,250,000$8.00$18,000,0006/17/2021Gap Down
LYEL
Lyell Immunopharma
$10.14
+10.5%
12/14/202125,000,000$17.00$425,000,0006/17/2021News Coverage
VERV
Verve Therapeutics
$36.17
+1.2%
12/14/202114,035,789$19.00$266,679,9916/17/2021Insider Buying
News Coverage
Gap Down
TRMR
Tremor International Ltd. American Depository Shares
$15.34
-0.1%
12/15/20216,768,953$19.00$128,610,1076/18/2021
CYT
Cytec Industries
$12.99
-1.7%
12/15/20217,400,000$18.00$133,200,0006/18/2021Gap Up
RERE
AiHuiShou International
$6.37
12/15/202116,233,000$14.00$227,262,0006/18/2021Gap Up
IPSC
Century Therapeutics
$15.49
-3.5%
12/15/202110,550,000$20.00$211,000,0006/18/2021News Coverage
DNAY
Codex DNA
$7.09
+2.6%
12/15/20216,666,665$16.00$106,666,6406/18/2021
FEMY
Femasys
$4.89
+7.9%
12/15/20212,650,000$13.00$34,450,0006/18/2021Analyst Upgrade
News Coverage
Gap Up
Trading Halted
ATAI
Atai Life Sciences
$11.33
+1.3%
12/15/202115,000,000$15.00$225,000,0006/18/2021Gap Down
AMAM
Ambrx Biopharma
$8.54
+5.3%
12/15/20217,000,000$18.00$126,000,0006/18/2021Analyst Upgrade
CXM
Sprinklr
$13.91
+1.6%
12/20/202116,625,000$16.00$266,000,0006/23/2021
CXM
Sprinklr
$13.91
+1.6%
12/20/202116,625,000$16.00$266,000,0006/23/2021
FA
First Advantage
$17.82
+2.5%
12/20/202125,500,000$15.00$382,500,0006/23/2021Analyst Revision
YMM
Full Truck Alliance
$11.30
-2.2%
12/20/202182,500,000$19.00$1,567,500,0006/22/2021Gap Down
MIRO
Miromatrix Medical
$7.00
+3.9%
12/21/20214,800,000$9.00$43,200,0006/24/2021Gap Up
DOCS
Doximity
$62.09
+0.3%
12/21/202123,300,000$26.00$605,800,0006/24/2021Insider Selling
Analyst Revision
GLUE
Monte Rosa Therapeutics
$17.62
+0.7%
12/21/202111,700,000$19.00$222,300,0006/24/2021Gap Down
GRVI
Grove
$4.74
+5.8%
12/21/20212,200,000$5.00$11,000,0006/24/2021Gap Down
BHG
Bright Health Group
$3.92
-5.1%
12/21/202151,350,000$18.00$924,300,0006/24/2021Options Volume
News Coverage
Gap Down
BON
Bon Natural Life
$4.94
-0.2%
12/21/20212,200,000$5.00$11,000,0006/24/2021Gap Down
ACXP
Acurx Pharmaceuticals
$4.53
+3.7%
12/22/20212,500,000$6.00$15,000,0006/25/2021
GRPH
Graphite Bio
$11.23
+10.5%
12/22/202114,000,000$17.00$238,000,0006/25/2021News Coverage
Gap Down
ELEV
Elevation Oncology
$5.18
-1.3%
12/22/20216,250,000$16.00$100,000,0006/25/2021News Coverage
GHRS
GH Research
$23.61
-1.4%
12/22/202110,000,000$16.00$160,000,0006/25/2021Earnings Report
Analyst Report
News Coverage
Gap Down
MCW
Mister Car Wash
$19.36
+0.4%
12/22/202137,500,000$15.00$562,500,0006/25/2021
MF
Missfresh
$4.53
+6.6%
12/22/202121,000,000$13.00$273,000,0006/25/2021
TKNO
Alpha Teknova
$19.02
-0.1%
12/22/20216,000,000$16.00$96,000,0006/25/2021Analyst Downgrade
Gap Down
YOU
Clear Secure
$28.70
+0.5%
12/27/202113,200,000$31.00$409,200,0006/30/2021Gap Down
SPRINT
Sprint
$0.00
12/27/202135,000,000$35.00$1,225,000,0006/30/2021High Trading Volume
XMTR
Xometry
$47.16
+5.5%
12/27/20216,875,000$44.00$302,500,0006/30/2021
LZ
LegalZoom.com
$17.96
12/27/202119,121,000$28.00$535,388,0006/30/2021Insider Selling
S
SentinelOne
$47.37
-7.2%
12/27/202135,000,000$35.00$1,225,000,0006/30/2021Earnings Report
Analyst Report
News Coverage
Gap Down
CVRX
CVRx
$11.86
12/27/20217,000,000$18.00$126,000,0006/30/2021
INTA
Intapp
$28.42
+2.8%
12/27/202110,500,000$26.00$273,000,0006/30/2021
GOBI
Gobi Acquisition
$9.70
-1.2%
12/27/202125,000,000$10.00$250,000,0006/29/2021
IAS
Integral Ad Science
$22.16
+1.0%
12/27/202115,000,000$18.00$270,000,0006/30/2021
AVTE
Aerovate Therapeutics
$11.29
-0.6%
12/27/20218,682,142$14.00$121,549,9886/30/2021Gap Down
DDL
Dingdong (Cayman)
$15.09
-7.1%
12/27/20214,072,000$24.00$95,692,0006/29/2021Gap Down
DIDI
DiDi Global
$6.98
-3.1%
12/27/2021316,800,000$14.00$4,435,200,0006/30/2021
DNAA
Social Capital Suvretta Holdings Corp. I Class A Ordinary Share
$9.93
+0.5%
12/27/202122,000,000$10.00$220,000,0006/30/2021
DNAB
Social Capital Suvretta Holdings Corp. II
$9.89
-0.2%
12/27/202122,000,000$10.00$220,000,0006/30/2021
DNAC
Social Capital Suvretta Holdings Corp. III Class A ordinary shares
$9.89
+0.2%
12/27/202122,000,000$10.00$220,000,0006/30/2021
BTTR
Better Choice
$3.39
-1.7%
12/27/20218,000,000$5.00$40,000,0006/29/2021Positive News
CPOP
Pop Culture Group
$2.07
+15.6%
12/27/20216,200,000$6.00$37,200,0006/30/2021Gap Up
ABOS
Acumen Pharmaceuticals
$7.52
-0.3%
12/28/20219,999,999$16.00$159,999,9847/1/2021
HEPS
D-MARKET Elektronik Hizmetler ve Ticaret Anonim Sirketi
$2.64
+6.5%
12/28/202156,740,000$12.00$680,880,0007/1/2021Gap Down
CURV
Torrid
$16.16
-2.6%
12/28/202111,000,000$21.00$231,000,0007/1/2021Analyst Upgrade
DNUT
Krispy Kreme
$16.02
+1.4%
12/28/202129,411,765$17.00$500,000,0057/1/2021
EVCM
EverCommerce
$16.67
+0.5%
12/28/202119,117,648$17.00$325,000,0167/1/2021
VRAR
The Glimpse Group
$10.52
-2.0%
12/28/20211,750,000$7.00$12,250,0007/1/2021Gap Down
WAVE
Eco Wave Power Global AB (publ) American Depositary Shares
$5.50
+5.8%
12/28/20211,000,000$8.00$8,000,0007/1/2021News Coverage
Gap Up
NYXH
Nyxoah
$20.36
+4.2%
12/29/20212,835,000$30.00$85,050,0007/2/2021Upcoming Earnings
Gap Up
MITQ
Moving iMage Technologies
$2.25
+5.1%
1/4/20224,200,000$3.00$12,600,0007/8/2021
AGRI
AgriFORCE Growing Systems
$2.08
+1.0%
1/4/20222,719,999$5.00$13,599,9957/8/2021Positive News
ALCC
AltC Acquisition
$9.90
-0.1%
1/4/202245,000,000$10.00$450,000,0007/8/2021News Coverage
SNTG
Sentage
$1.47
-0.7%
1/5/20224,000,000$5.00$20,000,0007/9/2021Positive News
RNAZ
TransCode Therapeutics
$2.82
+7.2%
1/5/20226,250,000$4.00$25,000,0007/9/2021Negative News
NECB
Northeast Community Bancorp
$10.79
+0.4%
1/10/20229,784,077$10.00$97,840,7707/13/2021
UNCY
Unicycive Therapeutics
$1.97
+3.7%
1/10/20225,000,000$5.00$25,000,0007/13/2021Gap Down
ARYE
ARYA Sciences Acquisition Corp V
$9.75
-0.1%
1/10/202213,000,000$10.00$130,000,0007/13/2021High Trading Volume
IINN
Inspira Technologies Oxy B.H.N.
$2.82
+6.0%
1/10/20222,909,091$6.00$16,029,0917/14/2021
FXLV
F45 Training
$12.05
+3.2%
1/11/202220,312,500$16.00$325,000,0007/15/2021Analyst Report
Gap Up
CULL
Cullman Bancorp
$12.36
-0.6%
1/11/20224,284,375$10.00$42,843,7507/15/2021
TCBS
Texas Community Bancshares
$15.28
-1.4%
1/11/20223,207,759$10.00$32,077,5907/15/2021
PBBK
PB Bankshares
$13.77
+0.4%
1/11/20222,777,250$10.00$27,772,5007/15/2021
PECO
Phillips Edison & Company Inc
$32.95
+1.4%
1/11/202217,000,000$28.00$476,000,0007/15/2021
MCG
Membership Collective Group
$12.94
-0.2%
1/11/202230,000,000$14.00$420,000,0007/15/2021
RPID
Rapid Micro Biosystems
$10.55
1/11/20227,920,000$20.00$158,400,0007/15/2021
SERA
Sera Prognostics
$9.40
-4.8%
1/11/20224,687,500$16.00$75,000,0007/15/2021Positive News
SGHT
Sight Sciences
$21.71
+2.3%
1/11/202210,000,000$24.00$240,000,0007/15/2021
TCRX
Tscan Therapeutics
$6.51
-0.5%
1/12/20226,666,667$15.00$100,000,0057/16/2021
RGC
Regal Entertainment Group
$26.95
+16.4%
1/12/20222,300,000$10.00$21,850,0007/16/2021Gap Up
High Trading Volume
STVN
Stevanato Group
$24.39
+6.1%
1/12/202232,000,000$21.00$672,000,0007/16/2021
BRDG
Bridge Investment Group
$20.88
+1.1%
1/12/202218,750,000$16.00$300,000,0007/16/2021Gap Up
BLFY
Blue Foundry Bancorp
$14.41
-1.1%
1/12/202227,772,500$10.00$277,725,0007/16/2021
BLND
Blend Labs
$9.09
-0.7%
1/12/202220,000,000$18.00$360,000,0007/16/2021
ERAS
Erasca
$14.49
+4.2%
1/12/202218,750,000$16.00$300,000,0007/16/2021
IMGO
Imago BioSciences
$18.06
+1.5%
1/12/20228,400,000$16.00$134,400,0007/16/2021Gap Up
HCWB
HCW Biologics
$2.67
+4.7%
1/17/20227,000,000$8.00$56,000,0007/20/2021News Coverage
Gap Up
TCBC
TC Bancshares
$13.27
-2.4%
1/17/20224,898,350$10.00$48,983,5007/21/2021
VEEE
Twin Vee PowerCats
$3.78
+10.2%
1/17/20223,000,000$6.00$18,000,0007/21/2021Gap Up
VTEX
Vtex
$16.08
+2.6%
1/17/202219,000,000$19.00$361,000,0007/21/2021
KLTR
Kaltura
$4.41
-3.5%
1/17/202215,000,000$10.00$150,000,0007/21/2021
LAW
CS Disco
$39.94
+4.9%
1/17/20227,000,000$32.00$224,000,0007/21/2021
PYCR
Paycor HCM
$32.04
+1.4%
1/17/202218,500,000$23.00$425,500,0007/21/2021
RYAN
Ryan Specialty Group
$39.10
1/18/202256,918,278$24.00$1,337,579,5337/22/2021
ZENV
Zenvia
$9.02
+7.4%
1/18/202211,538,462$13.00$150,000,0067/22/2021Gap Up
ZVIA
Zevia PBC
$8.51
+9.0%
1/18/202210,700,000$14.00$149,800,0007/22/2021Positive News
Gap Up
INST
Instructure
$22.49
+4.0%
1/18/202212,500,000$20.00$250,000,0007/22/2021
BASE
Couchbase
$28.02
-5.2%
1/18/20228,339,130$24.00$200,139,1207/22/2021Earnings Report
Analyst Report
News Coverage
Gap Down
ABSI
Absci
$11.65
+5.8%
1/18/202212,500,000$16.00$200,000,0007/22/2021News Coverage
Gap Down
CNM
Core & Main
$28.11
-1.4%
1/19/202234,883,721$20.00$697,674,4207/23/2021Earnings Report
Analyst Report
News Coverage
CRBU
Caribou Biosciences
$19.12
+1.8%
1/19/202219,000,000$16.00$304,000,0007/23/2021
CTKB
Cytek BioSciences
$19.98
+0.6%
1/19/202214,564,635$17.00$247,598,7957/23/2021
GAMB
Gambling.com Group
$11.47
-2.1%
1/19/20225,250,000$8.00$42,000,0007/23/2021
XPOF
Xponential Fitness
$23.95
+3.7%
1/19/202210,000,000$12.00$120,000,0007/23/2021Options Volume
SOPH
SOPHiA Genetics
$14.01
+1.9%
1/19/202213,000,000$18.00$234,000,0007/23/2021
SNPO
Snap One
$23.69
+5.3%
1/24/202213,850,000$18.00$249,300,0007/28/2021
PWSC
PowerSchool
$20.15
+0.4%
1/24/202239,473,685$18.00$710,526,3307/28/2021
MLNK
Project Angel Parent
$21.99
-0.6%
1/24/202213,200,000$26.00$343,200,0007/28/2021
DUOL
Duolingo
$109.47
-0.5%
1/24/20225,106,113$102.00$520,823,5267/28/2021
CADL
Candel Therapeutics
$9.18
-4.1%
1/24/20229,000,000$8.00$72,000,0007/27/2021News Coverage
DALS
DA32 Life Science Tech Acquisition
$9.79
-0.5%
1/24/202220,000,000$10.00$200,000,0007/28/2021
COOK
Traeger
$14.28
+5.1%
1/25/202223,529,411$18.00$423,529,3987/29/2021
HOOD
Robinhood Markets
$22.70
-0.1%
1/25/202255,000,000$38.00$2,090,000,0007/29/2021Analyst Downgrade
Gap Up
ICVX
Icosavax
$25.33
+0.1%
1/25/202212,133,333$15.00$181,999,9957/29/2021
NUVL
Nuvalent
$20.97
+9.1%
1/25/20229,150,000$17.00$155,550,0007/29/2021News Coverage
Gap Up
RSKD
Riskified
$9.40
+5.0%
1/25/202217,500,000$21.00$367,500,0007/29/2021Gap Down
RLYB
Rallybio
$12.18
-1.5%
1/25/20226,200,000$13.00$80,600,0007/29/2021Gap Down
RXST
RxSight
$12.22
+4.4%
1/26/20227,350,000$16.00$117,600,0007/30/2021
OMGA
Omega Therapeutics
$15.16
+1.7%
1/26/20227,400,000$17.00$125,800,0007/30/2021
RANI
Rani Therapeutics
$22.08
-6.0%
1/26/20226,666,667$11.00$73,333,3377/30/2021Analyst Revision
DOLE
(DOLE)
$12.75
-0.5%
1/26/202225,000,000$16.00$400,000,0007/30/2021Earnings Report
Dividend Announcement
Analyst Upgrade
TNYA
Tenaya Therapeutics
$21.44
+9.9%
1/26/202212,000,000$15.00$180,000,0007/30/2021Gap Up
IMRX
Immuneering
$22.62
+9.9%
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What is a Lock-Up Period?

Summary - When a company makes the decision to go public, they frequently register for an initial public offering (IPO) as a way to raise private equity. In the IPO prospectus, these companies will frequently include a clause that specifies a lock-up period and subsequent lock-up period expiration date. During the lock-up period, individuals that bought shares during the IPO process are prohibited from selling their shares on the secondary market for a period of time that typically ranges from 90 to 180 days. A hedge fund may institute a similar lock-up period and lock-up period expiration to allow a fund manager to generate a large return without concern of capital leaving the fund.

Although proponents of market timing pay close attention to IPO lock-up period expirations as an opportunity for both long and short sellers, there is a vocal group that argues against the need for lock-up periods at all. These proponents of the Efficient Market Hypothesis (EMH) argue that an efficient market will take into account information related to a stock and that the market is constantly accounting for that information in the share price. The theory goes on to express that any new information is immediately factored into the stock price, thus eliminating the opportunity for an individual or institutional investors to time the market. Any abnormal stock return can occur only through investing in higher risk stocks.

Introduction

For a company or hedge fund to go public, they have to raise private equity. For a hedge fund, this includes inviting investors to invest in the fund and for private companies, this typically takes place by the issuance of an initial public offering (IPO). In both cases, however, there is a significant risk of unfavorable price movement if investors were to pull their money out of the fund or stock too quickly. This is why most hedge funds and IPOs include a lock-up period. During this period, investors and shareholders are prohibited from buying and selling shares. The lock-up period expiration, therefore, is a closely watched event for investors who are following IPO stocks because the period around the lock-up expiration is usually marked by high trading volume and significant price movement. This article will go into detail about what a lock-up period is and how it is different for a hedge fund as opposed to an initial public offering. The article will also review why they are needed if they are legally required, how they differ from the quiet period expiration date, and perhaps most importantly – and controversially – do they really work?

What is a lock-up period?

A lock-up period (also known as a lock-up agreement) is a period of time (usually between 90-180 days) when investors are not allowed to buy or redeem shares. Lock-up periods can apply to hedge funds and initial public offerings. A hedge fund lock-up period will be linked to the underlying investments of the fund. If a hedge fund is comprised of mostly stocks with high liquidity, there may be a short lock-up period of 90 days. If the fund is considered to be more distressed (i.e. it is invested in low volume securities such as loans or other forms of debt), they may have a much longer lock-up period. Once the hedge fund lock-up expiration passes, investors can redeem shares according to the schedule laid out by the hedge fund. However, investors are generally required to give 30- to 90-day notice. This is to allow the hedge fund manager to liquidate underlying securities as needed. Each investor’s lock-up period expiration is tied to the date they began investing with the fund. This limits the amount of liquidation that can take place at one time.

An IPO lock-up period is a clause written into the prospectus of a company that accompanies its initial public offering (IPO). The lock-up period prohibits company insiders and other individuals who purchased stock as part of the IPO from selling their ordinary shares on the secondary market. Once the lock-up period ends (a date known as the lock-up period expiration), those shareholders can buy and sell their ordinary shares as they please.

Why is a lock-up period needed for a hedge fund?

The lock-up period is needed in order for hedge fund managers to attempt to maximize the return for investors. This can happen because, during the lock-up period, they can make an investment in securities that support the fund's goals without having to be concerned about investors redeeming shares. Without a lock-up period, the fund manager would have to ensure there was a large amount of cash or cash equivalents available which would take away from the available money to invest, thus lowering the potential return.

Why is a lock-up period needed for an IPO?

The theory behind an IPO lock-up period is that company insiders (which includes a company’s founders/owners, managers and employees) usually own a volume of shares that is disproportionate to the general public. After the initial public offering, these insiders – which can also include institutional investors, venture capitalists, and other early investors – have the most to gain from selling their shares at the higher share price created by the IPO.

If investors who bought shares of stock during the IPO were to suddenly share their shares when the stock began publicly trading, it would force the stock price down as more total shares outstanding enter the market. This increase in negative trading volume could have a long-term impact on the stock because it may curb the appetite of potential investors.

Some economists, particularly those who promote an efficient market, question if there is enough empirical evidence to support the need for a lock-up period. However, they have become a de facto clause in the prospectus for every IPO stock. The most common reasons for having a lock-up period (and a defined lock-up period expiration) include:

  1. It provides a period of time to "bridge the gap" created by information that is available to insiders prior to the IPO but is not available to the general public until after the IPO. In some cases, certain company insiders may have to wait for a period of time after the lock-up period expiration to sell their shares. This can occur during a company’s earnings season because insiders may have access to information about the company that could be construed as insider trading in the event that they were to sell their shares.
  2. It is sometimes thought of as a way for a company to create a signal regarding the quality of its stock. From Wall Street to main street, perception is reality. Most company insiders and early investors are simply looking to reward themselves with the profit that comes from taking their company public. However, to the public, this insider selling happening immediately after the initial public offering could appear to be a sign that the company is in trouble.

Are company’s legally required to set lock-up periods?

The short answer is no. In fact, a lock-up period is not required by any regulatory body including the Securities & Exchange Commission (SEC). However, they have become an almost de facto standard that is either self-imposed by the company who is launching the initial public offering or is required by the investment bank that is underwriting the IPO.

How is a lock-up period expiration different from a quiet period expiration?

Although both the lock-up period expiration date and the quiet period expiration date are used to help prevent abnormal stock returns, they happen at different times in the IPO process. The lock-up period expiration must be reached before selling activity can take place, the quiet period expiration date must be reached before buying can take place. The IPO lock-up period starts after the initial public offering is complete and goes into effect for a period of time while ordinary shares are sold on the stock exchange. The IPO quiet period takes place before the initial public offering is issued. This is a time when management and marketing teams from the company releasing the IPO are prohibited from releasing news to the public. Part of this is to prevent the real or perceived appearance of insider trading.

Do lock-up periods work?

This is a hotly debated topic within the investment community. The debate centers around the Efficient Market Hypothesis (EMH) theory. The EMH theorizes that a company’s share price reflects any and all information about the stock. Therefore, stocks will always trade at their fair value on their respective stock exchange. Proponents of the EMH would state that fundamental and technical analysis cannot be used to generate abnormal stock returns. They claim the only way to get higher returns is to purchase securities and investments that contain more risk.

According to the EMH, the lock-up period expiration is a matter of public record in the prospectus released with the IPO. With that in mind, an efficient market will take this expiration date into account before it actually happens. For example, if Company XYZ issues an IPO with a 90-day lock-up period expiration, the EMH would theorize that institutional investors and venture capitalists will automatically digest the knowledge of the IPO lock-up expiration date and initiate trading to move the share price accordingly. That way, when insider selling takes place after the lock-up expiration date occurs, the price impact will be negligible.

There is a semi-strong and a strong form of the EMH theory. The semi-strong form defines known information to be “all publicly available information”. This means that any individual can profit from that information because it is already in the public arena. The price impact of any new public information will be reflected in the company’s stock price almost immediately so a trader would have a difficult time profiting from that information. The semi-strong form would state that a lock-up period expiration date falls into the category of “publicly available information” and therefore would be incorporated into the stock price. Based on the semi-strong theory, the only way for an investor to generate higher stock returns would be to have information available to them before it became public.

The strong form defines known information to be “all pertinent information, both public and hidden”. Proponents of the strong form would claim that it was not possible for investors to generate abnormal stock returns even if they were trading on insider information.

On the other end of the argument are those investors who believe in market timing as a way to select stocks that will outperform the market. For these investors, the lock-up period expiration date becomes an ideal tool to time the market and attempt to profit during a period with either long or short selling techniques based on the anticipated price movement.

The final word on lock-up period expiration

A lock-up period expiration date can be a significant event for investors who believe in the benefits of market timing. At the end of a lock-up period, there can be significant share price movement and higher trading volume as company insiders (which includes company founders/owners and executives as well as institutional investors and venture capitalists) look to take profit after being prohibited from selling shares during the lock-up period.

A lock-up period is also frequently assigned to hedge funds. This is done so the hedge fund manager can initiate trades in accordance with the fund’s objectives without being concerned about the fund having a flight of capital from investors.

Although lock-up periods are not a legal requirement they have become a de facto standard that a company will issue voluntarily or to comply with the underwriters of the IPO. In either case, the lock-up period in an effort to protect the share price from the significant downward price movement that can occur when the early investors dump their shares. It also serves to prevent any appearance of insider trading.

The idea of using lock-up expiration dates as a form of market timing to generate abnormal stock returns is widely debated in the industry. Proponents of an efficient market use the Efficient Market Hypothesis (EMH) to claim that the market takes into account all publicly known information or any information both public and private into the stock price. Therefore, these investors would claim that the share price of an IPO stock is already pricing in the lock-up period expiration and subsequent activity surrounding it.

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