Lock-Up Agreement

AAA

DEFINITION of 'Lock-Up Agreement'

A legally binding contract between the underwriters and insiders of a company prohibiting these individuals from selling any shares of stock for a specified period of time. Lock-up periods typically last 180 days (six months) but can on occasion last for as little as 120 days or as long as 365 days (one year).

INVESTOPEDIA EXPLAINS 'Lock-Up Agreement'

Underwriters will have company executives, managers, employees and venture capitalists sign lock-up agreements to ensure an element of stability in the stock's price in the first few months of trading. When lock-ups expire, restricted people are permitted to sell their stock, which sometimes (if these insiders are looking to sell their stock) results in a drastic drop in share price due to the huge increase in supply of stock.

RELATED TERMS
  1. Red Herring

    A preliminary prospectus filed by a company with the Securities ...
  2. Market Standoff Agreement

    An agreement that prevents insiders of a company from selling ...
  3. Final Prospectus

    1. The final version of a prospectus for a public offering of ...
  4. Gross Spread

    The difference between the underwriting price received by the ...
  5. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs ...
  6. Gun Jumping

    1. The illegal practice of soliciting orders to buy a new issue ...
RELATED FAQS
  1. Why does the efficient market hypothesis state that technical analysis is bunk?

    The efficient market hypothesis (EMH) suggests that markets are informationally efficient. This means that historical prices ... Read Full Answer >>
  2. How does the risk of investing in the electronics sector compare to the broader market?

    The risk of investing in the electronics sector closely approximates the risk of investing in the broader market. The electronics ... Read Full Answer >>
  3. How do markets account for systematic risk?

    Systematic risks provide markets with an unpleasant quandary. Economists, policy makers, directors, fund managers and investors ... Read Full Answer >>
  4. What stage of the economic cycle is usually the best for an investor to enter the ...

    The best time during the economic cycle for an investor to enter the electronics sector is when he has confidently identified ... Read Full Answer >>
  5. How do S&P 500 futures work?

    S&P 500 futures are a type of capital asset contract that provides a buyer the right to a predetermined selection of ... Read Full Answer >>
  6. Can I use the current yield to compare a bond to an equity investment?

    Investors should be careful when comparing the current yield on a debt security with the growth of an equity security. Yield ... Read Full Answer >>
Related Articles
  1. Investing

    5 Tips For Investing In IPOs

    Thinking of investing in IPOs? Here are five things to remember before jumping into these murky waters.
  2. Retirement

    IPO Basics Tutorial

    What's an IPO, and how did everybody get so rich off them during the dotcom boom? We give you the scoop.
  3. Investing Basics

    What's the Primary Market?

    The primary markets are where investors can get first crack at a new security issuance.
  4. Investing Basics

    Explaining the Coupon Rate

    Coupon rate is the stated interest rate on a fixed income security.
  5. Investing Basics

    What are Ordinary Shares?

    Ordinary shares are any type of shares that are not preferred and don’t pay any type of predetermined dividend amount.
  6. Investing Basics

    Explaining the Spot Rate

    The spot rate is the immediate purchase price posted on exchanges for purchasing commodities, currency and securities.
  7. Investing Basics

    Understanding Redemption

    In the investing world, redemption refers to cashing out the value of bonds or mutual funds.
  8. Investing

    When Will The Bull Market End?

    A few weeks ago, the current bull market celebrated its sixth anniversary, making it one of the longest in history.
  9. Investing Basics

    Explaining Rights Offering

    A rights offering is an offer by a company to its existing shareholders of the right to buy additional shares in proportion to the number they already own.
  10. Investing Basics

    What is a Stock Option?

    An employee stock option is a right given to an employee to buy a certain number of company stock shares at a certain time and price in the future.

You May Also Like

Hot Definitions
  1. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  2. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  3. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  4. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  5. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  6. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center