9/6/2023 0 Comments Stock lock up period![]() Underwriters are the financial institutions, often investment banks, that help companies go public. ![]() They are generally subjected to the lock-up period because their actions could have the most significant impact on the company's stock price. Insiders refer to anyone who owns a significant stake in the company before the IPO and typically include employees, founders, and early investors. Parties Involved in a Lock-Up Period Insiders Protecting InvestorsĪ lock-up period also provides protection to investors by preventing insiders from immediately profiting at the potential expense of new shareholders. It gives the company some breathing space to demonstrate its worth without the potential downward pressure caused by a large-scale sell-off. ![]() Preventing Premature SellingĪnother purpose of the lock-up period is to prevent premature selling that could negatively impact the company’s stock price. If insiders were allowed to sell their substantial shares immediately after the IPO, it could lead to an oversupply of shares, causing the share price to drop dramatically. There is a multitude of reasons why a company may impose a lock-up period after its IPO. Thus, a lock-up period is a key risk management strategy that protects the interests of the company, its new shareholders, and the wider market. It provides the company with an opportunity to demonstrate its performance and growth potential free from the downward pressure that a large-scale sell-off might create. Typically lasting between 90 to 180 days, this period serves a crucial role in maintaining market stability after a company goes public. ![]() A lock-up period in finance is a pre-established timeframe following an Initial Public Offering (IPO) during which major shareholders, such as founders, employees, and early investors, are prohibited from selling their shares. ![]()
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