Why it is used
In a listing or issue, founders, major owners, directors and executives may sign lock-ups. The aim is to provide predictability about near-term share supply and show continuing economic exposure after the transaction. The period may run from first trading or closing and is negotiated for the particular company and market practice.
Read the scope, not only the duration. It may cover direct and indirect sales, pledges, derivatives, transfers to related parties and economically equivalent actions. Typical exceptions include inheritance, internal reorganisations, public takeovers or transfers to a recipient who assumes the same lock-up. The party able to grant consent is commercially important.
Disclosure and planning
A lock-up does not change ownership and cannot guarantee price or continued operational involvement. Expiry may increase potential supply but does not mean an owner will sell. Relevant terms should be disclosed clearly in the transaction document. Maintain a register of covered holdings, exceptions and expiry dates. A proposed waiver or amendment may require contractual analysis, a MAR assessment and market communication.
Plan the expiry date in the disclosure calendar so the company can address investor questions with accurate facts rather than speculation.