Lock up

Founders, employees and pre IPO investors agree not to sell for a defined period after the offering. It stops a wave of insider selling hitting a stock with no trading history and no established shareholder base.

One hundred and eighty days is the convention, though staggered structures releasing tranches at intervals are increasingly common, as are provisions allowing early release if the shares trade above a threshold.

Expiry is a scheduled, known event, so the market anticipates it and the shares frequently weaken beforehand. That is worth remembering when reading a price chart in the first year after a listing.

Underwriters can waive the lock up, and sometimes do to permit an orderly secondary offering, which is generally better for the price than uncoordinated selling on expiry.