Lock-in period: when shares cannot be sold yet
In several situations, shares come with a lock-in period during which they cannot be sold. This guide explains what a lock-in period is, where it applies and why it exists.
Quick answer
A lock-in period is a set time during which certain shares cannot be sold. It applies in cases such as promoter shares after an IPO, anchor investor shares and shares from preferential allotments. A lock-in period keeps key holders committed for a while, which supports stability and protects other investors.
Key takeaways
- A lock-in period bars selling certain shares for a set time.
- It applies to promoter, anchor and other special shares.
- It keeps key holders committed for a while.
- It supports stability after events like an IPO.
- It protects other investors from sudden sell-offs.
What is a lock-in period?
A lock-in period is a set time during which certain shares cannot be sold. The holder owns the shares but is not allowed to sell them until the lock-in ends.
Lock-ins apply in specific situations, usually to keep important holders committed for a while and to prevent them from selling too soon after an event.
Where do lock-in periods apply?
Lock-ins apply in several cases. After an IPO, a portion of promoter shares is locked in. Anchor investors face a lock-in on their shares, and shares from a preferential allotment also carry one.
In each case, the goal is to stop key holders from selling immediately, which could destabilise the share soon after an event or issue.
Why do lock-ins exist?
Lock-ins exist to support stability and protect other investors. If promoters or big investors could sell right after an IPO, they might dump shares and hurt the price and confidence.
| Holder | Reason for lock-in |
|---|---|
| Promoters | Show commitment after IPO |
| Anchor investors | Prevent day-one selling |
| Preferential allottees | Prevent quick exit |
By requiring key holders to stay invested for a period, lock-ins align their interests with the company and other shareholders.
What happens when a lock-in ends?
When a lock-in ends, the shares become free to sell. Sometimes a large amount of shares comes out of lock-in at once, which can affect the price if many holders decide to sell.
So the end of a big lock-in is an event some investors watch, since it can increase the supply of shares available to trade.
What should investors know?
For investors, lock-ins explain why certain shares cannot be sold for a while and why the end of a lock-in can affect supply. It is a background factor worth knowing.
Understanding lock-in periods helps you read IPO and issue details. Any investment decision should be your own after proper research and reading all related documents.
Frequently Asked Questions
What is a lock-in period?
A lock-in period is a set time during which certain shares cannot be sold, so the holder owns them but is not allowed to sell until the lock-in ends.
Where do lock-in periods apply?
They apply to a portion of promoter shares after an IPO, to anchor investor shares, and to shares from a preferential allotment, among other cases.
Why do lock-in periods exist?
To support stability and protect other investors, since if key holders could sell right after an IPO they might dump shares and hurt the price and confidence.
What happens when a lock-in ends?
The shares become free to sell, and sometimes a large amount comes out of lock-in at once, which can affect the price if many holders decide to sell.
Why do investors watch the end of a lock-in?
Because the end of a big lock-in can increase the supply of shares available to trade, which some investors watch as it can affect the share price.
Disclaimer: Investments in the securities market are subject to market risks. Please read all related documents carefully before investing. This article is intended for informational and knowledge purposes only and should not be considered tax, financial, or investment advice. Tax laws and deductions may vary based on individual circumstances and regulatory changes. Readers are advised to consult a qualified tax advisor or financial professional before making any investment or tax planning decisions.
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