IPO Lock-up Periods

Insiders on the sidelines

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By Selena Maranjian (TMF Selena)
August 9, 2002

Q. Is it true that when a company goes public via an initial public offering (IPO), its insiders can't sell their shares for a certain period of time? Why is this?

A. It's true. This is called the lock-up period. It typically runs for 90 days to a year and offers outside investors some measure of protection. If the newly public firm has some skeletons in its closet, insiders who know about them can't act on their "inside" knowledge and quickly sell shares before the public learns the bad news. Some companies set extra-long lock-up periods, to show their faith in the company and to inspire confidence in public shareholders.

So if you've been checking for insider sales and haven't seen any for a newly public company, don't necessarily take that as a good sign. The insiders may simply be temporarily stuck on the sidelines, preparing to unload many shares as soon as they can.

For more info on IPOs and how they work, read The ABCs of IPOs and our IPO FAQ.

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