What is Lock-up Period?
Lock-up period is the time frame when shareholders are not allowed to sell or redeem the shares of a company. This period applies to large shareholders such as hedge funds, company owners and executives, and does not apply to individual investors who bought shares via public offering. The usual lockup period can be from 90 days to 180 days; however, it can be up to one or two years for some firms.
The most common lock-up period is the IPO lock-up period, where a company restricts its big shareholders from selling their stock just after the IPO. This offers extra-protection for outside investors to trade these new illiquid stocks and helps market forces to decide the price of shares on an ask and bid basis. This also prevents shareholders with 'inside knowledge' from getting rid of their shares before the public comes to know the bad news. Lock-up period also helps hedge-fund investors as hedge-fund managers can keep lower amount of cash on hand and the underlying investment would remain protected.
Lock-up periods can also be a period of price manipulation or high price volatility. The true value of many company stocks is revealed only when traders with inside knowledge begin to trade stocks. The period just after the lockup period can be of high price volatility. Many companies set long lockup period to show their strength, faith in the company and growth potential.
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The most common lock-up period is the IPO lock-up period, where a company restricts its big shareholders from selling their stock just after the IPO. This offers extra-protection for outside investors to trade these new illiquid stocks and helps market forces to decide the price of shares on an ask and bid basis. This also prevents shareholders with 'inside knowledge' from getting rid of their shares before the public comes to know the bad news. Lock-up period also helps hedge-fund investors as hedge-fund managers can keep lower amount of cash on hand and the underlying investment would remain protected.
Lock-up periods can also be a period of price manipulation or high price volatility. The true value of many company stocks is revealed only when traders with inside knowledge begin to trade stocks. The period just after the lockup period can be of high price volatility. Many companies set long lockup period to show their strength, faith in the company and growth potential.
NobleTrading.com Offers Online Stock Trading, Online Options Trading
Online Futures Trading, Online Forex Trading
Worldwide Brokerage Service, Day Trading Brokerage
posted by NobleTrading at
9:00 AM
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