Market Standoff Agreement

DEFINITION of 'Market Standoff Agreement'

An agreement that prevents insiders of a company from selling their shares in the market for a specified number of days subsequent to an initial public offering (IPO). The agreement is executed between the underwriters to the issue and the company's insiders. The term during which insiders are prohibited from selling their shares consequent to a market standoff agreement is generally 180 days, but can vary from as little as 90 days to as much as one year.

BREAKING DOWN 'Market Standoff Agreement'

Market standoff agreements are used to avoid precipitous declines in a stock after it commences trading because of massive insider sales. When the dotcom boom turned to bust from 2000 onwards, numerous stocks in the sector lost a major chunk of their market capitalization within weeks of the expiry of such lock-up agreements, an alternate term for market standoff agreements.