IPO Investors: Beware the Quiet Period and Lockup Expirations

By: Spencer Israel

The number of big-name IPOs have grabbed headlines and investor attention in the past few weeks.

As of April 23, there have been 34 IPO pricings in 2019. And while that number is down slightly from last year, the fact that a significant portion of the unicorns expected to go public have either done so or at least begun the process has Wall Street buzzing.

Three unicorns—Lyft ($LYFT), Pinterest ($PINS), and Tradeweb Markets ($TW)-have completed the IPO process so far this year, and another three—Uber, Slack, and Postmates—are expected to do the same in the near future. For context, 2018 had only five unicorn IPOs.

This relative influx of large IPOs makes this a good time to remember the two most important dates to be aware of after a company goes public: the quiet period expiration and lockup expiration.

Quiet Period

In the context of IPOs, companies are subject to a quiet period both before and after the IPO date. For company executives, this is an SEC-mandated period of 40 days in which they are prohibited from offering new information that isn’t already available to the public via the S-1 filing.

There’s also a quiet period in terms of research reports that can be released about an IPO. While there is no set deadline, sell-side analysts whose firms participated in the IPO underwriting process typically do not publish anything for 20-30 days after the IPO date. The purpose of this is to prevent the potential conflict of interest of a bank disseminating positive opinions about a stock having just been allocated a piece of the IPO.

Once this analyst quiet period is up, it’s not unusual for most major underwriters to come out with research reports and ratings on the same day. In the case of the largest IPOs, like Lyft below, some of the largest banks on Wall Street helped underwrite the offering. Oftentimes, the influence that these banks carry on Wall Street, combined with the sheer quantity of research being made public can drive a stock higher or lower.

On the morning that Lyft’s analyst quiet period ended, the stock opened up nearly 2% on no other news.

Lyft’s quiet period ended on April 23, 2019, after which 11 underwriters-initiated sell-side coverage of the stock.

Lockup Expiration

We’ve written before about lock-up expirations and how to trade them. Lock-ups are the period in which company insiders (including executives and those that were allocated shares of the IPO) are forbidden from selling their shares on the public markets.

Most IPOs have a lock-up period ranging anywhere from 90-180 days after the offering date, though the exact date can be found in the company’s S-1.

While there’s no guarantee that any insider will sell once the lock-up expires, the fact that they can is enough of a catalyst that entire trading strategies are centered around this. Some companies, like Alibaba ($BABA) and Facebook ($FB), saw added volatility in the days leading up to and after their lock-ups.

The SEC’s Edgar site is a great source to track upcoming lockup expirations.

The author holds no positions in any of the stocks mentioned.

Active Trading with Lightspeed

Lightspeed provides active traders with all the tools required to help them find success in stock trading, and we have been developing and honing our active trader platform to offer the best possible user experience in the marketplace. With the intuitive interface layouts and institutional quality stock and option scanners, we aim to help traders reach their goals, no matter what their strategy is. We also offer our clients some of the lowest trading fees in the industry.

For more information on a professional trading platform with Lightspeed, please call us at 1-888-577-3123, request a demo or to open an account.

Lime Brokerage LLC is not affiliated with these service providers. Data, information, and material (“content”) is provided for informational and educational purposes only. This content neither is, nor should be construed as an offer, solicitation, or recommendation to buy or sell any securities. Any investment decisions made by the user through the use of such content is solely based on the users independent analysis taking into consideration your financial circumstances, investment objectives, and risk tolerance. Lime Brokerage LLC does not endorse, offer or recommend any of the services provided by any of the above service providers and any service used to execute any trading strategies are solely based on the independent analysis of the user.

You may also be interested in...

The IPOX® Week, October 21, 2019
Read More
Partial Trade Deal, Partial Optimism
Read More
The IPOX® Week, October 14, 2019
Read More
What’s The Deal With These Expensive Restaurant Stocks?
Read More

Try the demo

Compare Platforms
Check the background of this firm on FINRA's BrokerCheck

Our website uses cookies to improve the performance of our site, to analyze the traffic to our site, and to personalize your experience of the site. You can control cookies through your browser settings. Please find more information on the cookies used on our site in our Privacy Policy. By clicking OK, you agree to allow us to collect information through cookies.

OK