When a company decides to float itself in the market by conducting an Initial Public Offering (IPO), it invites the general public to invest in its shares. There are various significant processes involved in doing so, such as verifying the IPO allotment status and determining the lock-in period. Both are involved with how investors approach their IPO investments. 

IPO Allotment Status: What Is It and Why Does It Matter? 

The IPO allotment status informs investors if and when they have been allotted the IPO shares or not. When investors make applications for shares in a public offer, particularly where there is huge demand, applications might outstrip available shares. 

After the closure of the IPO, the issue registrar confirms the allotment. The investors can subsequently verify their IPO allotment status online based on their PAN, application number, or Demat account information. It assists them in knowing in which direction to head next, whether it be taking delivery of the shares or making decisions based on the allotment result. 

Lock-In Period in IPOs: Meaning

The lock in period of IPOs denotes a certain timeframe within which certain shareholders are prevented from selling off their shares when the company issues its IPO and becomes publicly traded. The intent behind this policy is to sustain stability in the share price since it will prohibit huge numbers of shares from appearing in the market shortly after the listing.

The lock-in period primarily applies to promoters, anchor investors, and other pre-IPO shareholders. It can also affect strategic investors, employees with ESOPs, and others who might have received shares before the IPO.

Why Lock-In Periods Are Needed? 

Lock-in periods have several purposes:

They prevent sudden fluctuations in share prices after listing.

They give assurance to new investors that insiders are interested in the long-term development of the company.

They keep large shareholders from selling the company immediately after listing, which may reflect a lack of confidence.

Regulatory authorities such as SEBI (Securities and Exchange Board of India) impose lock-in periods on various categories of investors. This is to promote fair trading practices and safeguard retail investors from possible price manipulation.

Types of Lock-In Periods in IPOs

There are various types of lock-in periods in IPOs, based on the category of shareholder:

Promoters and Pre-IPO Shareholders

Promoters and some pre-IPO shareholders are usually bound by a lock-in of 18 months to 3 years. According to SEBI norms, at least a certain percentage of the holding of the promoters has to be locked up for a specific time after listing. 

Anchor Investors

Anchor investors are institutional investors who invest at the time of opening of the IPO to the public. Their investment contributes to establishing faith in the issue. Anchor investors are typically put on a lock-in period of 30 days from the allotment date.

Employee Stock Option Plans (ESOPs)

Employees who get stock through ESOPs before the IPO might also be subject to a lock-in period. This serves to align the interests of employees with the performance of the company after listing.

Strategic Investors

In certain instances, strategic investors who are allotted shares pre-IPO may also be prohibited from selling their shares for a certain period, as specified in the offer document.

Retail and Non-Institutional Investors (NII)

There is no lock-in period for retail and NII participants who are allotted an IPO in general. These investors can sell their shares once they are listed on the stock exchange.

How the Lock-In Period Works? 

After the allotment of the shares and listing of the company, the lock-in period starts. 

Shareholders belonging to any of the restricted categories during the lock-in period are not allowed to sell or transfer their shares in the secondary market. This restriction is enforceable as per the law and is regulated by the regulatory bodies.

After the expiration of the lock-in, the shareholders can sell their shares like any other listed security. The lock-in schedule is generally made public by the companies in the red herring prospectus or offer documents.

A lock-in expiration would sometimes mean an increase in the share supply in the market, which can have a bearing on the share price. Investors would usually monitor the lock-in expiration dates to expect any possible shift in the stock.

Conclusion

The lock-in period of IPOs, as well as the allotment status of IPOs, are significant considerations for investors. Although the allotment status indicates whether one has been allotted shares, the lock-in period indicates when some classes of investors can sell their shares.