Insiders Cannot Sell for Six Months and Everyone Knows the Date
A lock up agreement stops employees and early investors selling immediately after a listing. Because the expiry date is public, the market prices the coming supply well before it arrives.
Why the Restriction Exists
When a company lists, only a fraction of its shares are typically sold in the offering. The rest are held by founders, employees, and pre listing investors.
If all of those holders could sell immediately, the supply would overwhelm a market with no established trading history and no reliable sense of what the shares are worth. A lock up agreement prevents that by restricting sales for a defined period, most commonly one hundred and eighty days.
The restriction is not a regulatory requirement in most cases. It is a contractual term the underwriters insist on, because an orderly aftermarket is what they are being paid to produce.
What Happens at Expiry
The date is disclosed in the prospectus, so it is known to everyone from the moment of listing. That public knowledge is what makes the mechanics interesting.
The naive expectation is that the shares fall on the expiry date as insiders sell. What generally happens is that prices weaken in the period leading up to it, as the market anticipates the supply, and the reaction on the day itself is smaller than expected.
| Expectation | Typical reality |
|---|---|
| Sharp fall on the day | Weakness spread over preceding weeks |
| All insiders sell | Many hold, some are restricted further |
| Effect is uniform | Depends on how much stock is unlocking |
What Determines the Impact
The size of the unlock relative to the freely traded float is the main factor. A company that listed ten percent of its shares has a much larger overhang than one that listed forty percent.
Performance since listing matters too. Insiders holding shares well above the offering price have both profit to realise and a market able to absorb selling. Insiders sitting on losses may prefer to wait, which reduces the supply but leaves the overhang in place.
The identity of the holders is the third factor. Venture funds approaching the end of their life have a genuine need to distribute or sell. Founders with no liquidity need may hold indefinitely.
The Staggered Alternative
Some companies use structures releasing shares in stages, or conditioning release on the share price reaching thresholds after listing.
These spread the supply and reduce the single date effect. Price based triggers have an additional property worth noting: they can release stock into strength, which is when the market can absorb it, rather than on a fixed calendar date that may fall in poor conditions.
Why Waivers Are Informative
Underwriters can release holders early, and sometimes do, typically to allow a secondary offering when demand is strong.
An early release is a signal worth reading carefully. It can indicate genuine institutional demand that the company wants to satisfy, which is positive. It can also indicate that insiders pressed for liquidity, which is less so. The circumstances usually make clear which.
What It Means for an Investor
The practical points are to know when the expiry falls before buying a recently listed company, to size the unlock against the existing float rather than treating all expiries alike, and to expect the effect before the date rather than on it.
It is also worth being sceptical of the idea that expiry creates a reliable trading opportunity. The date is public, the analysis is not difficult, and anything that widely known is generally reflected in the price already.
The Bottom Line
Lock ups prevent insider selling from swamping a newly listed stock, and because the expiry date is disclosed, the market prices the anticipated supply in advance rather than on the day. What matters is the size of the unlock against the traded float and who the holders are, not the date itself.