After an initial public offering (IPO), a lock-up period is a contractual restriction that prevents pre-existing shareholders, or “insiders,” from selling their stock for a certain period of time after a company goes public. The lock-up period typically ranges from 90-180 days. While lock-up periods are not required by the SEC, companies usually either self-impose a lock-up period, or it is a part of their contract with the investment bank that is underwriting the IPO.
The main purpose of the lock-up period is to prevent investors who may have a large number of shares from oversaturating the market with an influx of shares, which can lower the stock’s price.
Once the lock-up period has expired, most existing shareholders are free to sell shares.