Glossary
Lockup period
A stretch after an IPO, often 90 to 180 days, during which insiders and early investors agree not to sell shares.
On this page
A lockup period is a contractual window after an initial public offering during which company insiders, employees and pre-IPO investors agree not to sell or hedge their shares. Underwriters require it so that a flood of existing shares does not hit the market while the new stock is still finding its price. Lockups are agreements with the underwriters, not an SEC rule, and their terms are disclosed in the IPO prospectus.
How it works
The most common length is 180 days, though some deals use 90 days, staggered releases, or early releases tied to conditions such as the stock trading a certain percentage above the IPO price for a set number of days after an earnings report. Underwriters can also waive a lockup at their discretion.
Why investors watch it
The end of a lockup does not force anyone to sell, but it adds potential supply. Early investors such as venture funds often need to return cash to their own investors, and employees may want to diversify. Studies of US IPOs have found, on average, negative abnormal returns around lockup expiration, though the effect varies widely and is well known in advance. Watch the prospectus for the exact date and conditions, and Form 4 filings afterward for insider sales.