Trading term
What is Lock-up period?
A lock-up period is a stretch after an IPO during which existing shareholders have agreed not to sell their shares. The SEC's investor bulletin describes it as “typically 180 days”.
When a company goes public, only some of its shares are actually sold in the offering. The founders, the employees and the early backers keep theirs, and they sign an agreement promising not to sell for a while. In the SEC's words, “the existing shareholders have entered into a ‘lock-up agreement’ in which they agree not to sell their shares for a certain period of time, typically 180 days”.
So for roughly the first six months, the shares changing hands are mostly the ones sold in the offering. That's a small slice of everything the company has issued. The price you see in those first months is being set by a deliberately limited supply, with everyone who owns the rest sitting on their hands because they agreed to.
Then the agreement runs out, and a lot of shares become sellable on the same day. The SEC names the consequence directly: “when lock-up agreements expire, the share price may decline significantly if a large number of shares become available for sale all at once”. Whether it happens depends on how many of those holders want out.
For example
A company lists, and its founders and early investors sign a 180-day lock-up. For about six months, the only shares that can trade are the ones sold in the offering. On the day the lock-up ends, every remaining share becomes sellable at once.
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Explore Premium →Why it matters to you
The early price of a newly public company is a price set on restricted supply. Most of the owners literally cannot sell. That's a fact about the market for those shares, not about the business, and it has an end date built into it. If you're buying in the first few months, you're buying into a supply situation that is going to change on a known day.
⚠ The expiry date is knowable, and it's still a supply event
People treat a post-expiry fall as news about the company. Often it's arithmetic: the SEC says the price may decline significantly when a large number of shares become available for sale all at once. Insiders selling at the end of a lock-up may be diversifying, paying tax, or finally reaching the exit they signed up for years ago. Read it as supply first, and as a signal only if something else supports that.