Why Shares Released from Lockup Are Not Automatically Shares for Sale
Distinguish scheduled lockup releases from actual selling, and assess post-IPO supply pressure by comparing the release with tradable shares and examining holders' incentives.
A lockup or mandatory holding expiry removes disposal restrictions; it does not mean all affected shares will be sold that day. To assess the supply and demand effect, consider the holders and existing tradable supply as well as the number of shares being released.
Align the reference date and reason for the restriction first
Korean mandatory holding requirements, commitments made during an offering, and contractual lockups overseas differ in nature and duration. Do not apply one fixed period to every stock; check the terms in the registration statement and related disclosures. Record the release date, affected shareholders, share count, and reason for the restriction in a timetable. If a bonus issue or stock split has occurred, adjust the share count in older filings to the current share basis. Whether other contracts or restrictions remain after the mandatory holding period ends requires a separate check.
Compare with actual tradable supply as well as total issued shares
Calculate the release as a percentage of both total issued shares and existing tradable shares to clarify its significance. A block that looks small relative to the whole company may be large relative to the shares currently available for trading. Dividing it by average daily trading volume is only a supplementary way to gauge scale; it does not establish the number of days needed for absorption. Trading volume includes repeated trades in the same shares, and post-release demand and block-trade methods may also differ.
Check holders' objectives and subsequent disclosures
A major shareholder seeking to retain control, a financial investor seeking a fund exit, and employees monetizing compensation may have different incentives. Inferring motives is separate from confirming actual selling plans, however. Monitor substantial shareholding reports, executive ownership reports, and trading plan disclosures around the release date. The SEC's US lockup guidance also emphasizes checking individual periods and terms, but its description of US practice should not be read as a Korean statutory holding period. Monthly aggregate releases cannot replace a company's final timetable. Note the date checked and the disclosures used, then compare subsequent company filings as the expected release date approaches to see whether quantities or terms have changed.
Worked example
Hypothetical example: Assume a company has 20 million issued shares and 5 million currently tradable shares, and restrictions are lifted on 1 million shares. The release represents 5% of total issued shares but 20% of existing tradable supply. It is four times average daily trading volume of 250,000 shares. Record this as a reference measure of potential supply growth, rather than turning it into a prediction that all shares will be sold within four days.
What to check
- Check the release date and the reference date for the share count being released.
- Adjust quantities for subsequent stock splits and bonus issues.
- Distinguish holder types from confirmed selling plans.
- Calculate the release relative to both total issued shares and tradable supply.
Sources and primary materials
This is educational material about research methods. For an actual company decision, verify the filings and primary sources for the relevant period.