Lock-up agreements: ABI publishes best-practice recommendations

In the run-up to an initial public offering (IPO) or placing of a company, investors with significant shareholdings frequently enter into an agreement with the investment bank leading the process under which the investor undertakes not to sell further shares for a given period, except under certain circumstances (a lock-up agreement). Generally, lock-up agreements are subject to waiver by the investment bank in its sole discretion.

There has been a recent trend towards lock-up agreements being waived by the bank in whose favour they are given before the stated expiry date. The Association of British Insurers (ABI) has expressed concerns about the recent increased frequency of such waivers and has recently published recommendations relating to lock-up agreements.

The ABI recognises the importance for banks and vendors to retain a degree of flexibility in this area, both to minimise potential risks of distortion to trading patterns and to take advantage of situations when it is everybody’s interests for a lock-up agreement to be waived. However, the ABI emphasises the significant function that lock-up agreements play in the market in regulating the supply of shares and their relevance to price formation. Investors place significant reliance on them…

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