When a company lists on Nasdaq, market attention typically centers on the first day’s trading performance.
For officers and significant shareholders, however, an equally critical issue is when and how shares may be sold following the IPO.
This note outlines the principal regulatory and contractual considerations for both company insiders and the investing public.
Definition of “Insider”
For U.S. securities law purposes, an insider generally includes:
- Directors and executive officers of the issuer, and
- Beneficial owners of more than 10% of any class of the issuer’s equity securities.
These individuals are subject to specific restrictions under the Securities Act of 1933, the Securities Exchange Act of 1934, and related SEC regulations.
Lock-Up Agreements
Customary Duration
- Under the underwriting agreement, insiders and certain other pre-IPO holders typically agree not to sell or otherwise transfer their shares for a period of approximately 180 days from the IPO date.
The precise duration and any permitted early releases are negotiated with the underwriters and disclosed in the IPO prospectus.
Purpose
- Lock-ups help maintain an orderly market by preventing a sudden influx of insider sales that could disrupt the share price or investor confidence.
Post–Lock-Up Sales
Once the lock-up expires, insiders may sell their shares only in compliance with U.S. securities laws, most commonly through:
Rule 144 of the Securities Act, which provides a safe harbor for the resale of restricted and control securities, subject to holding periods, volume limits, manner-of-sale requirements, and the availability of current public information.
Section 16 of the Exchange Act, which requires insiders to report most purchases or sales on Form 4 within two business days of the transaction.
Companies often maintain insider trading policies establishing trading windows and blackout periods (for example, around quarterly earnings) to reduce the risk of trades occurring while insiders possess material nonpublic information.
Ordinary Public Investors
Investors who purchase shares in the open market after the IPO are not subject to lock-up agreements or Rule 144 restrictions.
They may trade freely during Nasdaq’s regular market hours, subject only to the usual market rules and disclosure obligations applicable to any shareholder.
Practical Considerations for Issuers
Advance Planning: Coordinate lock-up terms and potential phased releases with underwriters and counsel well before pricing.
Communication Strategy: Provide clear public disclosure of lock-up expirations and any early releases to manage investor expectations and mitigate volatility.
Compliance Infrastructure: Adopt and enforce insider trading and disclosure policies that address pre-clearance, blackout periods, and the handling of material nonpublic information.
How can we help
Going public on Nasdaq is only the beginning of a company’s global journey. Strong post-IPO compliance and clear communication are just as important as the listing itself.
If you have questions about insider trading rules or other post-listing requirements, our team at Hexcellence Consulting is ready to assist.
We provide end to end US listing and capital markets advisory from the early preparation phase through ongoing compliance so your company can grow with confidence in the international market.
