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 While there is no set deadline, sell-side analysts whose firms participated in the IPO underwriting process typically do not publish anything for 20-30 days after the IPO date.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.

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