Lock-in period after IPO listing

What Is the Lock-in Period After IPO Listing?

The lock-in period is a timeframe during which certain shareholders of a company cannot sell or transfer their shares after the company gets listed on the stock exchange (i.e., after the IPO).
It is a regulatory requirement by SEBI (Securities and Exchange Board of India) to maintain market stability and prevent sudden selling pressure right after the IPO.

Purpose of the Lock-in Period:

The main reasons for imposing a lock-in are:

1. To build investor confidence:
   Ensures that promoters and key investors have a long-term commitment and aren’t exiting immediately after listing.
2. To avoid market volatility:
   Prevents a sudden surge in supply of shares right after IPO, which could cause price crashes.
3. To ensure fair valuation:
   Helps in maintaining a stable price discovery process post-listing.

Who Is Subject to the Lock-in Period?

SEBI defines lock-in requirements for different categories of shareholders:

1. Promoters and Promoter Group

• Minimum contribution requirement:
  Promoters must hold at least 20% of post-issue capital.
• Lock-in period:
  • 18 months for the minimum 20% promoter holding (for companies with a track record).
  • 3 years if the company is newly formed or does not meet SEBI’s track record criteria.
• Excess promoter holding:
  Any shares held by promoters beyond the minimum 20% are locked for 6 months.

2. Pre-IPO (Unlisted) Investors

• Includes angel investors, venture capitalists, private equity funds, HNIs, employees (ESOPs), and others who held shares before the IPO.
• Lock-in period:
  Generally 6 months from the date of IPO allotment.
• Exception:
  If they sold shares in the IPO (Offer for Sale), those shares are free to trade immediately since they’re sold to the public.

3. Anchor Investors

• Institutional investors who invest just before the IPO opens to the public.
• Lock-in period (as per SEBI rules effective 2023):
  • 50% of their shares locked for 30 days from allotment.
  • Remaining 50% locked for 90 days.
• This was revised from the earlier 30-day period to ensure stability in post-listing price.

4. Employee Shares (ESOPs)

• Employees who received shares under ESOP schemes before IPO also face a 6-month lock-in from the date of listing.
• This is to prevent bulk selling by employees post-listing, which could affect market sentiment.

Typical Lock-in Period Summary Table:

Category of Shareholder	Lock-in Period	Details / Conditions
Promoters (minimum 20%)	18 months (or 3 years if no track record)	Applies to minimum promoter contribution
Promoter holding beyond 20%	6 months	Any additional shares
Pre-IPO investors (non-promoters)	6 months	Includes VC, PE, HNI, employees
Anchor investors	30–90 days	50% each tranche as per new SEBI rule
ESOP / Employee shareholders	6 months	Post-listing lock-in
Public investors (Retail / QIB / NII)	No lock-in	Free to sell after listing

SEBI Regulation Reference:

• The lock-in provisions are governed under SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, particularly Regulation 17 and 18.
• SEBI periodically updates these based on market conditions (last major update in August 2021 and 2023 for anchor investors).

Practical Example:

Suppose XYZ Pvt. Ltd. goes public in March 2025.

Shareholder Type	Holding Pre-IPO	Lock-in Ends On
Promoter (20%)	Locked for 18 months	September 2026
PE Fund	Locked for 6 months	September 2025
Anchor Investor	50% till April 2025, rest till June 2025	30–90 days
Employee ESOPs	Locked for 6 months	September 2025

Thus, only retail investors and new IPO subscribers can freely sell on listing day.

Why Lock-in Matters to Unlisted Shareholders?

If you buy shares in the unlisted (pre-IPO) market, you become a pre-IPO investor.
That means:

• After the company lists, you cannot sell for 6 months from the IPO allotment date.
• This can affect your liquidity planning — though the benefit is that early investors often buy at lower valuations.

Tips for Investors:

1. Check lock-in before investing: Always verify the company’s DRHP (Draft Red Herring Prospectus) — it specifies lock-in details.
2. Plan exit timing: If you hold unlisted shares, be prepared for a 6-month holding post-IPO.
3. Diversify: Don’t block all capital in companies likely to remain illiquid for long.
4. Watch anchor exit dates: Anchor investor lock-in expiry often causes short-term price volatility.

Conclusion:-

The lock-in period after IPO is a protective mechanism — it ensures stability, confidence, and orderly trading in the market.
For unlisted shareholders, understanding these timelines helps plan liquidity, tax impact, and exit strategy effectively.