The phrase "locked in" describes a situation wherein an investor is unwilling or unable to trade a security because of regulations, taxes or penalties associated with doing so. This may be an investment vehicle, such as a retirement plan, that cannot be accessed until a specified retirement date.


If there is an increase in value of stocks held by an individual, the shareholder will be subject to a capital-gains tax (with some exceptions). To reduce the tax burden, an investor could shelter these gains in a retirement account. The individual is considered locked in because if a portion of this investment is withdrawn prior to maturity, the owner will be taxed at a higher rate than if he or she had waited.

How Locked-In Securities Are Issued

Locked-in securities can describe stock, options and warrants offered to employees under incentive programs that have a mandatory vesting period. Typically, such shares or warrants must be held for several years before they can be exercised. There may be phases of the locked-in period when, at predetermined intervals, the shares change ownership or taxation status. Even after options or warrants have been converted into stock and granted to an employee, there may be another holding period before she can sell those shares. In such instances, the employees usually receive the options at the market price at the time they were granted, which may represent a deep discount to the market price when they are exercised. Depending on when the stock is sold, the proceeds might be taxed at a lower rate than they would have initially required.

Uses for Locked-In Shares

When a company initiates an initial public offering, there may be lock-in stipulations on shares held by founders, promoters and other early backers of the company. This is to prohibit these people, as company insiders, from selling or transferring shares during the IPO period, when they might have advantageous company information that outside investors don't. This period might last 90 days or even several years after the IPO. A locked-in period mitigates the possibility of such manipulation by restricting insider trades.

Executives and senior management might also be granted compensation through locked-in shares that would not be released for a period of time, in order to encourage superior performance.