Lock in period

by Manshu on May 6, 2008

in Articles

During a lock in period, an investor is prevented from selling the shares he holds. There are certain types of stocks that a person can buy that have this stipulation attached to them. The amount of time that the person can’t sell the stocks has to be disclosed. That information can’t be hidden and then revealed later on by law. Generally it is at least 90 days though and not more than one year.

Many employers who allow their employees to invest in stock for the company have such guidelines in place. The amount of time that this covers will vary so it is very important to pay attention to it before you buy. After that period of time has passed the individual can sell them if they choose to do so. This is done in order to offer outside investors some sense of security.

For example if a company is doing poorly, it is generally the employees who will know it first. This can result in them rushing to sell their stocks. As a result of that movement the public will do the same because they are following suit. There also won’t be much of a market to buy these stocks. With a lock in period in place though this can’t occur even if the employees do have information that indicates the company isn’t doing so well right now.

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