Lock-Up Period: Restrictions, Exceptions, and Expiration

An IPO lock-up period is a contractual window, typically 90 to 180 days after a company’s initial public offering, during which insiders and pre-IPO investors cannot sell their shares on the public market.¹ It’s a private agreement between the company and its underwriters, not a federal rule, and the exact terms live in the IPO prospectus.²

Who Is Locked Up and for How Long

The agreement binds anyone who held equity before the company went public: founders, executive officers, directors, venture capital and private equity investors, and employees holding stock options or RSUs.¹ Vested shares, recently exercised options, and still-restricted stock are all covered.

Most lock-ups run 180 days from the first day of trading, though the range spans 90 to 180 days depending on the deal.¹ The restriction covers more than outright sales. Hedging tactics like short-selling the stock or buying puts against the locked position are also blocked, because underwriters treat any hedge as an end-run around the ban.

Finding the Exact Terms in the S-1

If you want to know when the lock-up expires and how many shares will be released, pull the company’s S-1 registration statement from the SEC’s EDGAR database. Two sections matter: “Shares Eligible for Future Sale” and the underwriting agreement portion of the prospectus. They state the number of shares subject to lock-up, the precise duration, and any conditions that could shorten or extend it. A recent S-1 described the standard structure this way: the company and its insiders “agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any of their shares” during the restricted period “except with the prior written consent of the representatives.”³ The full lock-up agreement is usually attached as an exhibit.

Federal securities law requires companies using a lock-up to disclose the terms in the registration documents, so the information is public before the stock starts trading.²

Exceptions That Let Some Shares Move Early

The restriction is strict, but a handful of narrow paths exist. Most require the underwriter’s explicit consent.

Underwriter Waivers

The lead underwriter can release a specific insider early. Waivers are uncommon and usually tied to death, divorce, or serious financial hardship. When one is granted, FINRA Rule 5131 requires the book-running lead manager to announce the impending release through a major news service at least two business days before the shares become tradeable.⁴ The only carve-out from that notice requirement is a transfer without consideration (a gift, for example) to an immediate family member who agrees to the same lock-up terms.

Rule 10b5-1 Trading Plans

Insiders often set up a written trading plan during the lock-up that schedules actual sales for later. A Rule 10b5-1 plan, adopted when the insider has no material nonpublic information, specifies in advance the number of shares, price, and dates for future trades, and it provides a legal defense against insider-trading claims when those trades execute.⁵

Watch the cooling-off period. Under the SEC’s 2023 amendments to Rule 10b5-1, officers and directors must wait at least 90 days after adopting or modifying a plan before the first trade can run (up to 120 days in some cases). Other insiders must wait at least 30 days.⁶ If you set up a plan early in the lock-up, the cooling-off usually runs concurrently with the remaining restriction. Set one up near the end of the lock-up and the first permitted trade could land well past the expiration date.

Transfers to Family and Trusts

Most lock-up agreements allow transfers to family members or trusts for estate planning, on one condition: the recipient signs on to the same lock-up terms. The restriction follows the shares. Moving stock into a spouse’s name or a family trust does not open a path to early selling.

The Automatic Extension Around Earnings

Many lock-up agreements include an automatic extension that catches insiders off guard. If the company releases earnings or announces material news during the final 17 days of the lock-up, the restriction extends by 18 days from that announcement.⁷ The same extension triggers if the company announces it will release earnings within 15 to 16 days after the scheduled end date.

The point is to prevent insiders from selling into fresh material news. Underwriters can waive the extension in writing, but it’s discretionary. Before you count on a specific expiration date, check whether an earnings call falls in that window.

What Happens When the Lock-Up Expires

Expiration is one of the more predictable catalysts in stock trading. Academic research on hundreds of IPOs has found an average price decline of roughly 1% to 3% around the expiration date, with trading volume jumping about 40%. The price drop is permanent rather than a temporary dip that reverses.

How hard the stock is hit depends on the size of the release relative to the existing public float. Venture-backed IPOs where locked shares are more than half of total outstanding stock produce a real supply shock. If the released shares are small next to average daily volume, the effect may be negligible. Strong post-IPO earnings can pull in institutional demand that absorbs the selling. Some deals use staggered releases that spread the supply increase across weeks. When large pre-IPO holders publicly commit to holding, that helps too.

To see selling coming, watch EDGAR for Form 144 filings. Rule 144 requires affiliates to file a notice of proposed sale with the SEC when they intend to sell restricted or control stock. A cluster of Form 144s in the days before expiration is a reliable signal that meaningful insider selling is on the way.

Rule 144 Still Limits Insider Selling After Expiration

The lock-up lifting doesn’t mean everyone can sell freely. Company affiliates (directors, officers, and holders of more than 10% of voting stock) stay subject to Rule 144 volume caps. In any three-month period, an affiliate can sell no more than the greater of:

1% of outstanding shares of the same class, or
The average weekly trading volume during the four calendar weeks before the Form 144 filing.⁸

For thinly traded stocks the 1% cap bites. A company with 100 million shares outstanding limits affiliate sales to 1 million shares per quarter, no matter how large the insider’s position. For OTC-traded stocks, only the 1% measurement applies.

Non-affiliates (former insiders no longer in a control relationship, or early investors who were never affiliates) face no volume limits once they’ve held the shares six months, if the company files reports with the SEC, or twelve months for non-reporting companies.⁸ Because most pre-IPO shareholders have held their stock far longer than that by the time the lock-up ends, the holding requirement is usually already satisfied.

Tax Consequences of Selling After the Lock-Up

This is where planning matters most. The tax rate on your gain depends on how long you held the shares before selling, measured from the acquisition date, not the IPO date and not the lock-up expiration date.

Shares held more than one year qualify for long-term capital gains rates of 0%, 15%, or 20%, depending on taxable income and filing status. Shares held one year or less are taxed as ordinary income, up to 37% at the top federal bracket. Founders and early employees who received equity years before the IPO usually clear the one-year threshold. Employees who exercised options shortly before or during the IPO may not, meaning shares that become sellable at the 180-day mark could still be short-term for tax purposes.

High earners face another layer. The 3.8% Net Investment Income Tax applies to capital gains when modified adjusted gross income exceeds $200,000 for single filers or $250,000 for married couples filing jointly.⁹ For someone selling a sizable block of appreciated stock, that surtax is almost certainly in play. Add state income tax and the effective rate on a short-term gain can approach 50% in high-tax states. Waiting a few months past a 180-day lock-up expiration to clear the one-year holding period can be worth tens or hundreds of thousands of dollars, depending on the position.

Direct Listings and Other Contexts

Not every path to the public markets carries a lock-up. Companies that go public through a direct listing typically impose none, because no new shares are being issued and there’s no underwriter to demand the restriction. Existing shareholders can sell from day one.

SPACs go the other direction. Sponsor lock-ups often run a full year from merger completion, while the target company’s shareholders typically face the standard 180-day restriction. Some SPAC agreements include price-based early-release triggers that shorten the lock-up if the stock trades above a set threshold for a sustained period. Hedge funds use the same word for something different: their lock-ups restrict investor redemptions, not stock sales, and they can run from zero to two years or more depending on the strategy.

1
Investor.gov. Initial Public Offerings: Lockup Agreements
2
U.S. Securities and Exchange Commission. Initial Public Offerings: Lockup Agreements
3
U.S. Securities and Exchange Commission. Form S-1 Registration Statement
4
FINRA. FINRA Rules 5131 – New Issue Allocations and Distributions
5
eCFR. 17 CFR 240.10b5-1 – Trading on the Basis of Material Nonpublic Information
6
U.S. Securities and Exchange Commission. Rule 10b5-1 Insider Trading Arrangements and Related Disclosure – Fact Sheet
7
U.S. Securities and Exchange Commission. Lock-Up Agreement
8
eCFR. 17 CFR 230.144 – Persons Deemed Not to Be Engaged in a Distribution and Therefore Not Underwriters
9
Internal Revenue Service. Net Investment Income Tax