The definition of lock-up is the period of time in which a certain operation cannot be performed. The reasons for these closing periods vary depending on the type of product.
Why do a financial lock-up?
For example in the field of fondos de inversión, the lock-up is the period of time during which the entry of new participants or the execution of new investments in a fund is prevented. The reasons for this closure is that the fund will have already achieved the advisable equity figure for efficient management and its increase could lead to a lower profitability option for participants.
For its part, in public offers of sale, some shareholders may sign a lock-up pact, where they would be forced to keep their shares for a specific period of time in order to facilitate the placement among users, put an end to the uncertainty and price reduction that would arise in the event that some shareholder important will choose to dispose of your holdings.
The reasons for these locks are variable. When it comes to stocks, what is sought is to end the uncertainty of losing large investors at once, in addition to lowering the options of a speculation disproportionate and a very high variation in the stock market. In the case of investment funds, the lock-up is applied as a control measure, when the number of investors is sufficient to guarantee the proper management of resources.
For the investor there are a number of important risks at the time of immobilization. This is the case, for example, when an investor acquires a package of shares that lost a lot of value during the lock-up. In that case, we would have to wait for the blocking stage to end and sell the securities at a lower purchase price or else be a little patient and wait for the trend to rise.