November 11, 2025
5 mins read
An IPO lock-up is a timeframe following a public offering during which insiders (company executives, employees, and early investors with pre-IPO shareholdings) are unable to sell their shares. This concept is used on a global basis and applied in India to prevent a huge influx of shares coming to market immediately after the listing. If everybody sold shares at once, the stock could markedly decrease in price.
Lock-up periods are instituted to promote stability in the market and give the stock time to establish itself. Once these periods expire, insiders can sell shares over a period of time (to prevent market agitation) or possibly wait for more attractive opportunities. The manner in which insiders dispose of shares post-lockup can shape stock prices and investor sentiment in the months after an IPO.
During a lock-up period associated with the IPO, insiders are prohibited from selling their shares. This restriction is designed to limit the number of shares available in the market, which will help maintain the stock price in the initial trading periods. By placing restrictions on how many shares can be sold at any given time, companies hope to prevent any sudden price fluctuations that could frighten investors.
Lock-up periods vary from 90 to 180 days, although the exact amount of time is included in the IPO prospectus. Insiders will still be able to hold large percentages of shares, but they will not be able to sell or liquidate their positions at that time. This allows the market to absorb the newly listed stock.
Once the lock-up period expires, insiders can sell their shares. Many insiders will sell in tranches to avoid overwhelming the market and putting downward pressure on the stock. Investors will pay particular attention to what insiders do, as it is thought of as a very important signal of confidence or concern about the company going forward.
Anchor investors have a 90-day lock-in period on 50% of their allotted shares. The remaining 50% is locked in for 30 days after the allotment.
The lock-in period is 18 months for allotments of up to 20% of post-issue paid-up capital from the previous three years.
For allotments exceeding 20% of post-issue paid-up capital, the lock-in is reduced to 6 months.
The lock-in period has been reduced from 1 year to 6 months for non-promoter shareholders.
The main function of the lock-up is to prevent an immediate rush of shares into the market following listing. An influx of shares could result in a horrible price decline that would harm the company and investors.
Lock-ups also imply owner commitment, which is presented to the public as a way for insiders to show their belief in the company plans to succeed on long-term basis, which helps build legitimacy and trust with new investors.
From a regulatory standpoint, a lock-up period allows for orderly price discovery as it provides price stability based upon market demand as opposed to a forced sell from an insider. It further benefits retail investors as it creates a restriction before the insiders sell, giving them time to assess the offering.
The IPO lock-up period offers several advantages. First, it helps reduce volatility by limiting insider sales. This ensures that the stock price does not experience sudden swings in the early days of trading.
It also builds confidence among investors. When insiders hold onto their shares, it shows faith in the company’s future. This reassures retail investors and encourages them to participate in the market.
Lock-ups also allow for structured selling. Insiders can plan how and when they sell their shares after the lock-up, which helps avoid abrupt price changes.
Additionally, knowing the lock-up period helps you predict stock behaviour. You can anticipate potential price movements when the period ends and plan your trading strategy accordingly.
Finally, lock-ups encourage insiders to focus on long-term growth. Since they cannot sell immediately, their attention stays on enhancing the company’s performance rather than short-term gains.
Although lock-ups have many benefits, they do come with downsides. Insiders have limited liquidity as they cannot access the value of their shares during the lock-up.
Once the lock-up period ends, there is risk of price pressure from a large sale of stock by insiders. Even if there is no price pressure, there could be downward price pressure as the stock price declines temporarily.
Market participants could also engage in speculation over insiders' selling activities that can cause unnecessary volatility in the stock price. An IPO lock-up can also create a false sense of security. Just because insiders cannot sell immediately does not necessarily mean that the stock will remain stable. Other market forces can influence stock prices regardless of the lock-up period.
Finally, insiders cannot be flexible. Insiders cannot react to personal financial obligations until their exit from the lock-up, which can be a major burden in personal situations.
The restrictions of the IPO lock-up period have ended, thus permitting insiders to sell their shares. If many insiders sell a large amount of shares close together, then the supply may increase and pressure the stock price lower.
There are many factors that determine the impact of lock-up expiration on stocks, including the overall market conditions, investor sentiment, and stock demand after the IPO. The stock price may remain stable if the market has upgrades (positive prices) and insiders gradually sell much (sets price equilibrium).
The lock-up period for an IPO is an important part of the IPO process. It helps control the influx of shares into the market and helps support price stability and investor confidence.
Insider selling after the lock-up ends may continue to influence stock prices, dependent on the overall market conditions. Understanding how this all plays out helps you to recognise specific risks and opportunities.
For investors, understanding IPO lock-ups is key. It helps you plan your trades, monitor market sentiment, and make decisions based on long-term strategies rather than short-term fluctuations. Ultimately, lock-ups protect both the company and retail investors, ensuring smoother trading after a stock goes public.
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An IPO lock-up period is a duration following an initial public offering during which important shareholders, such as executives and insiders, are prohibited from selling their stock.
Companies use the IPO lock-up period to prevent an influx of shares into the market, which could cause stock price instability due to high volume immediately after the IPO.
A typical IPO lock-up period lasts anywhere from 90 to 180 days, but the duration can vary depending on the company’s specific terms and agreements with underwriters.
Insiders are free to sell their shares once the lock-up period ends, which might raise the number of shares available on the market and affect stock prices.
SEBI dictates IPO lock-in periods in India to provide stability to the market as well as to prevent insiders from trading their shares shortly after an IPO, thus protecting investor confidence.
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