A lock-up period is a time window, usually 180 days, during which insiders of a company cannot sell their shares after an IPO or SPAC merger. This restriction is designed to prevent a flood of insider selling that could crash the stock price right after the company goes public. Once the lock-up period expires, insiders are free to sell their shares, though they may still face other regulations.
Tech startup XYZ goes public through a SPAC merger in January. Company founders, employees, and early investors are subject to a 180-day lock-up period ending in July. During these six months, they cannot sell their shares, even if the stock price rises significantly. In July, when the lock-up expires, these insiders can begin selling their shares.
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