What is Freed Up

In the initial public offering world, freed up refers to the time after the lock-up period when investment bank underwriters are no longer obligated to sell securities at the agreed upon price. When an investment bank is freed up, it is allowed to trade any remaining securities at the prevalent market price.

Freed up also applies to the company insiders who hold shares of the business. These holders of private company shares may have contractual restrictions on selling their shares on the open market until after the lock-up period.

Freed up may also refer to the amount of capital which becomes available to an investor when closing a position. The freed up funds can then be used to invest in other assets.


Freed up can be a clue to the status of an initial public offering or the direct public offering. If a firm decides to start offering public shares of its stock, it typically must hire one or more investment banks (IB) who can take care of the IPO. Employing more than one bank can help spread the risk of the IPO between banks, but one bank will usually be the lead during this process.

These banks will place their bids for the handling the IPO. Equity underwriters will work closely with the issuing company to determine the initial offering share price. The underwriter also guarantees a specific number of shares will be sold at that initial price and will purchase any surplus. Each of the underwriting banks will assume a particular number of shares to market. Once an investment bank contracts to market these shares they cannot give them back to the company. For this reason, the most crucial time in the IPO is when the market share price is determined.

During the initial public offering, the bank agrees to market their allotted shares of the security at the fixed price. Sometimes, the demand for the shares is significant, and investors are willing to pay higher prices. However, until the syndicate is freed up from the fixed price restrictions, it cannot adjust the sale price of the stock, despite the increased demand. 

IPO Steps Before Being Freed Up

When a company starts the IPO process, a specific set of events must occur.

  1. An external IPO team is formed, including the lead and additional banks, underwriter(s), lawyers, certified public accountants (CPAs) and Securities and Exchange Commission (SEC) experts. They compile information to be included in the company preliminary prospectus such as financial performance, details of its operations, management history, risks, and expected future trajectory.
  2. Registration is the process by which a business files the required documents with the Securities and Exchange Commission (SEC), detailing the particulars of a proposed public offering. After registration, the investment bank's securities brokers or dealers become legally entitled to offer the securities.
  3. A road show is a presentation given to analysts, fund managers, and potential investors. The underwriters will complete a book building process where they attempt to determine the best price for the IPO based on demand and interest from institutional investors.
  4. The final prospectus is created and distributed to the potential investors and the SEC. It is the primary source for investors when seeking information on a publicly offered investment.
  5. The quiet period is an SEC-mandated embargo on promotional publicity that prohibits management teams or their marketing agents from making forecasts or expressing opinions about the value of a company. It is ten calendar days following the IPO's first day of public trading.
  6. The lock-up period for newly issued public shares of a company helps stabilize the stock price after it enters the market. Insiders, or those holding shares of the company when it was private, may have contracts which state they cannot sell their shares until after the company trades publically for 90 to 180 days. The SEC does not require businesses that are going public to have a lock-up period. Instead, the lock-up period is something that the companies themselves and the investment banks underwriting the IPO request to keep the stock's price up.

After this period of stabilization for the shares passes, insiders and investment banks may sell their shares on the open market. Sometimes insiders cannot sell shares even when the lock-up period ends. They may have nonpublic information about the company, and a sale would constitute insider trading. Such a scenario might occur, for example, if the end of the lock-up coincided with earnings season.