IPO Lock-Up

Categories: IPO, Regulations

See: 144a. See: Lock-Up Agreement.

When a company goes public, its insiders are "locked up" or prohibited from trading in that stock, usually for two quarters and change of the company being public. Like having eaten four pounds of oatmeal, they are, uh...locked up during this period (against trading).

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Finance: What is a Lock Up Agreement?3 Views

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Finance allah shmoop what is ah lock up agreement Okay

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You invested your dough in the original round of this

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venture capital like investment or you're a founder whose entire

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network lives in the form of stock in your hot

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little new company Dot com you sold a portion of

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it to the public earlier in your aipo raising a

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big fat pot of money for you to go spend

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opening new sales channels in china Uzbekistanian and somalia Yeah

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good luck with that So now you're desperate to sell

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some percentage of your holdings You've been dying to buy

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that new tesla suv with the gullwing doors and you

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know self make upping feature But you can't buy it

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Why Well because your locked up and it's nothing prunes

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will solve You signed a contractual agreement when you did

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the original handshake with the investment bankers who were taking

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you public You agreed that you would follow what are

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called the one forty four a laws which restrict insiders

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from selling any shares until to quarters and change have

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fast during which a company is newly public Well why

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do these laws even exist Well because a bunch of

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scummy city slickers screwed over a bunch of uneducated farmers

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in a bygone era such that the government had to

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step in and make everyone play fair and square like

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they dumped their shares the minute the company was public

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on unsuspecting farmers who paid eighty seven dollars share only

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to watch the stock trade down to eighty seven cents

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a share two years later or even less Yeah that

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happened right Well the general idea here is that if

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a company can show professionally audited public Numbers 4:6 months

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and change of being a public company well then they

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wouldn't have been able to hide something deep dark fraud

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like elements about their business that it was all kind

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of a shell game against those poor farmers Well everyone

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would be playing then on the same level playing field

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and it would be fair upon public notice for insiders

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to sell some limited percentage of their total holdings and

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get liquid well in practice all kinds of restrictions exist

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against freeform insider selling so a maximum total percentage owned

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per month recorder per year is out there their maximum

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ceilings against which total volume can't be certain passed in

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a given day like if a million shares trade in

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a day you can't sell more than five percent or

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fifty thousand shares in a day And a bunch of

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other restrictions exist that are designed to mitigate the spread

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between information held by insiders and information held by outsiders 00:02:40.645 --> [endTime] Yeah other outsiders

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