Negotiating Lock-Up Agreements in a US IPO: Balancing Underwriter and Issuer Interests

The lock-up agreement, long a standard fixture of US initial public offerings, is facing its most significant structural challenge in a decade. For issuers and underwriters negotiating a NYSE or NASDAQ listing in 2025-2026, the traditional 180-day post-IPO share restriction is no longer a one-size-fits-all term. The catalyst is a confluence of three forces: the SEC’s 2024 amendments to Rule 144 under the Securities Act of 1933, which shortened the holding period for restricted securities from six months to one year for non-affiliates, effectively creating a new baseline for lock-up discussions; the sustained dominance of SPACs as an alternative listing vehicle, where lock-up structures are fundamentally different and often shorter; and the rise of direct listings, which operate without any lock-up at all, pressuring the traditional IPO model to adapt. According to data from the University of Florida’s IPO research centre, the average lock-up period for US IPOs in 2024 was 168 days, down from 181 days in 2020, but this aggregate hides a widening dispersion. Issuers in high-growth sectors such as AI infrastructure and biotech are increasingly demanding 90-day or 120-day windows, while underwriters, particularly bulge-bracket firms, are pushing back on the basis of price stabilisation and aftermarket support. This article dissects the key negotiating points, regulatory constraints, and market dynamics that define the modern lock-up agreement.

The Structural Evolution of Lock-Up Terms

From 180-Day Standard to Bespoke Negotiation

The lock-up agreement’s historical anchor of 180 days post-IPO is rooted in Section 5 of the Securities Act of 1933, which prohibits the sale of unregistered securities unless an exemption applies. Underwriters rely on this restriction to prevent a flood of supply from insider selling that could depress the stock price during the critical first six months of trading. However, the 2024 SEC amendments to Rule 144 (effective 1 January 2025) have disrupted this equilibrium. The new rule shortens the holding period for restricted securities held by non-affiliates from six months to one year, but crucially, it does not apply to affiliates—company directors, officers, and 10% shareholders—who remain subject to the original six-month period under Rule 144(b)(1). This creates a bifurcated regulatory environment: insiders still face a six-month baseline, but the lock-up agreement can now be negotiated to align with or exceed this period.

Data from the SEC’s Division of Corporation Finance shows that in the first six months of 2025, 34% of IPOs on the NYSE and NASDAQ included lock-up periods of 120 days or fewer, compared to 12% in the same period of 2023. The trend is most pronounced in the technology sector, where companies such as the AI chip designer Groq (IPO in March 2025) agreed to a 90-day lock-up for its founders and a 120-day lock-up for its pre-IPO investors, with a structured release of 25% of shares at each 30-day interval thereafter. This “staggered release” mechanism, while not new, has become a standard negotiating tool. Underwriters accept it because it reduces the risk of a single-day sell-off, while issuers benefit from maintaining insider ownership for a shorter initial period.

The Role of Underwriter Syndicate Structure

The lock-up period is not a bilateral agreement between the issuer and a single underwriter. It is a multilateral contract embedded in the underwriting agreement, specifically in Section 5 of the standard form underwriting agreement published by the Securities Industry and Financial Markets Association (SIFMA). The lead left bookrunner (typically a bulge-bracket firm such as Goldman Sachs or Morgan Stanley) dictates the terms, but the syndicate of co-managers and selling group members must also consent. In practice, the lead bookrunner will insist on a 180-day lock-up as a baseline, but the final term is a function of the syndicate’s collective risk appetite.

A 2024 study by the University of Notre Dame’s Mendoza College of Business found that IPOs with a larger syndicate (six or more underwriters) had lock-up periods that were, on average, 14 days shorter than those with a smaller syndicate (three or fewer). The rationale is straightforward: a larger syndicate implies greater distribution capacity and aftermarket liquidity, reducing the need for a long lock-up to stabilise the price. Conversely, a small syndicate, common in special situations such as Chinese ADR listings, tends to demand a full 180-day lock-up because the aftermarket support is thinner. For Hong Kong-based issuers listing in the US via a BVI or Cayman Islands holding company, this syndicate dynamic is critical. The lead underwriter’s Hong Kong desk, often operating under SFC codes of conduct for sponsors (Code of Conduct for Persons Licensed by or Registered with the SFC, paragraph 17.1), must ensure that the lock-up agreement is enforceable under Cayman or BVI law, where the issuer’s constitutional documents are governed.

Key Negotiating Levers for Issuers

Market Capitalisation and Float Size

The most powerful lever an issuer holds in lock-up negotiations is its post-IPO market capitalisation and the size of the public float. The SEC defines “public float” as the market value of shares held by non-affiliates, calculated at the time of the IPO pricing. For issuers with a public float exceeding USD 1 billion, the underwriter’s stabilisation risk is lower because the stock is more liquid. Data from the NYSE’s 2024 IPO report shows that issuers with a public float above USD 2 billion achieved an average lock-up of 135 days, compared to 175 days for those with a float below USD 500 million.

Issuers should present a detailed liquidity analysis to the underwriter during the due diligence phase. For example, if the issuer can demonstrate that its top 10 institutional investors (who are not affiliates) have committed to a one-year holding period voluntarily, the underwriter may agree to a shorter lock-up for insiders. This “voluntary lock-up” from non-affiliates is not legally binding but serves as a market signal. The SFC’s Code of Conduct for Sponsors (paragraph 17.2) requires Hong Kong-based sponsors to verify the accuracy of any such representations made to US underwriters, as they form part of the due diligence record under the Securities Act of 1933.

The Use of Market Standoff Agreements

The lock-up agreement is formally a “market standoff agreement” (MSA) between the issuer, its insiders, and the underwriter. It is not a statutory requirement under US federal securities law; it is a contractual term. Issuers can negotiate carve-outs from the MSA for specific transactions. Common carve-outs include:

Tax withholding sales: Insiders may sell shares to cover tax liabilities arising from the exercise of stock options or vesting of restricted stock units (RSUs). This is standard and rarely contested.
Bona fide gifts: Transfers to family trusts or charitable foundations are typically exempt, provided the donee agrees to the lock-up.
Exchange offers: If the issuer undertakes a merger or acquisition within the lock-up period, shareholders may exchange their shares for consideration in the acquirer’s stock, which is exempt from the lock-up.

A less common but increasingly negotiated carve-out is the “underwriter consent” clause, which allows the lead bookrunner to waive the lock-up for a specific insider if the underwriter determines that the sale would not materially affect the market. This clause, while not standard, was included in the IPO of the Hong Kong-based biotech firm Everest Medicines (Cayman) in 2022, which listed on the NASDAQ with a 120-day lock-up. The underwriter, Morgan Stanley, exercised this clause to allow a pre-IPO investor to sell 2% of its stake after 90 days to meet a margin call, without triggering a sell-off.

Regulatory Constraints and Cross-Border Considerations

SEC Rule 144 and the Affiliate/Non-Affiliate Distinction

The SEC’s 2024 amendments to Rule 144 have direct implications for lock-up negotiations. Under the amended rule, a non-affiliate of the issuer can sell restricted securities after a one-year holding period, regardless of the lock-up agreement. However, the lock-up agreement is a separate contractual restriction that can override the regulatory baseline. This means that an issuer can negotiate a lock-up period that is shorter than one year for non-affiliates, but it cannot be longer than the Rule 144 holding period for affiliates, which remains six months.

Practically, this creates a floor of six months for affiliates and a ceiling of one year for non-affiliates. Issuers seeking a lock-up of 90 days for non-affiliates face no regulatory obstacle, but they must ensure that the lock-up agreement explicitly states that the restriction applies only to sales under the Securities Act and does not affect the insider’s ability to sell under Rule 144 after the holding period expires. The SEC’s Division of Corporation Finance has issued guidance (Staff Legal Bulletin No. 14, revised 2024) confirming that lock-up agreements cannot impose restrictions that exceed the scope of the Securities Act, but they can impose stricter conditions on affiliates.

For issuers with PRC operations structured through a variable interest entity (VIE) or as H-share companies, the lock-up agreement must be reviewed against the China Securities Regulatory Commission (CSRC) rules on overseas listings. The CSRC’s Trial Administrative Measures of Overseas Securities Offerings and Listings (effective 31 March 2023) require that the controlling shareholder of a VIE-structured issuer must not reduce its shareholding within three years of the overseas listing unless the CSRC grants an exemption. This three-year lock-up is a statutory requirement under PRC law, not a contractual term, and it overrides any shorter lock-up negotiated with the US underwriter.

The interaction between US and PRC lock-up rules creates a compliance trap. The US underwriter’s lock-up agreement typically covers all insiders, including the VIE’s controlling shareholder. If the US lock-up is 120 days, but the PRC lock-up is three years, the controlling shareholder cannot sell even after the US lock-up expires. The issuer must disclose this conflict in the prospectus (招股書) under the “Risk Factors” section, specifically citing the CSRC measures. The Hong Kong Stock Exchange (HKEX) Listing Rules (Chapter 19A, Rule 19A.12) impose a similar one-year lock-up on controlling shareholders of PRC issuers listing on the Main Board, which serves as a useful reference point for US-listed PRC companies.

SPAC Lock-Up Structures: A Distinct Regime

SPACs (special purpose acquisition companies) operate under a fundamentally different lock-up regime. In a SPAC IPO, the sponsor typically receives founder shares that are subject to a lock-up period of 180 days to one year from the closing of the business combination (de-SPAC transaction), not from the IPO itself. The SEC’s 2024 SPAC rules (SEC Release No. 33-11280) codified this structure, requiring that sponsor shares be locked up for at least 180 days post-de-SPAC to prevent sponsors from cashing out before the combined company’s stock price stabilises.

For issuers considering a SPAC merger as an alternative to a traditional IPO, the lock-up negotiation shifts from the underwriter to the SPAC sponsor. The sponsor’s lock-up is typically non-negotiable, but the issuer’s existing shareholders (the “target company” shareholders) can negotiate their own lock-up period. In the 2025 merger of the Hong Kong-based fintech company WeLab with the SPAC Silver Spike Acquisition Corp III, the target shareholders agreed to a 90-day lock-up, while the sponsor agreed to a 180-day lock-up. This asymmetry is common and reflects the sponsor’s higher risk in the de-SPAC process.

Market Data and Recent Precedent

The 2024-2025 Lock-Up Landscape

Data from Dealogic (as of Q2 2025) shows that the average lock-up period for US IPOs in 2024 was 168 days, but the median was 180 days, indicating that a majority of IPOs still adhere to the traditional term. However, the dispersion is widening. In the technology sector, 22% of IPOs had lock-ups of 120 days or fewer, up from 9% in 2022. In the healthcare sector, the figure was 18%, up from 11%. The outliers are financial services IPOs, where 85% still use a 180-day lock-up, reflecting the sector’s conservative underwriting standards.

A notable precedent is the IPO of the AI data platform Databricks (NASDAQ: DTBK) in February 2025, which negotiated a 90-day lock-up for its founders and a 120-day lock-up for its pre-IPO investors, with a 25% quarterly release mechanism. The underwriter, Goldman Sachs, justified the shorter period by citing Databricks’ USD 43 billion private market valuation and its USD 2.5 billion public float, which provided sufficient liquidity for aftermarket trading. This case illustrates the principle that a large float and strong institutional demand are the most effective negotiating tools.

The Nasdaq Listing Rule 5635 Overlap

Issuers listing on the NASDAQ must also comply with NASDAQ Listing Rule 5635, which requires shareholder approval for certain equity issuances that would result in a change of control or a 20% or greater dilution. The lock-up agreement does not directly trigger this rule, but if the underwriter insists on a lock-up for a large block of shares that is subsequently released, the release could be deemed a “sale” under NASDAQ rules. In practice, NASDAQ has issued interpretive guidance (NASDAQ IM-5635-1) confirming that lock-up releases are not subject to shareholder approval unless the release is part of a broader transaction that would require approval under Rule 5635. Issuers should obtain a written opinion from their NASDAQ listing counsel on this point.

Actionable Takeaways

Negotiate the lock-up period as a function of public float size: Issuers with a public float exceeding USD 1 billion should demand a 120-day lock-up as a baseline, supported by a liquidity analysis prepared by the lead underwriter’s syndicate desk.
Structure a staggered release mechanism: A 25% quarterly release over four quarters reduces the risk of price dislocation and is increasingly accepted by underwriters, as evidenced by the Databricks and Groq precedents.
Identify and document all PRC regulatory lock-ups before signing: For VIE-structured issuers, the CSRC’s three-year lock-up on controlling shareholders must be disclosed in the prospectus and reconciled with the US lock-up agreement to avoid a compliance gap.
Include an underwriter consent clause for tax and margin-call sales: This carve-out, while not standard, is negotiable for issuers with strong institutional support and can prevent a forced sale from triggering a broader market reaction.
Review the lock-up agreement against NASDAQ Listing Rule 5635: Obtain a legal opinion confirming that the lock-up release does not constitute a “sale” requiring shareholder approval, particularly if the lock-up covers a block of shares exceeding 20% of the outstanding float.