Insider Locked Shares

Insider locked shares are company shares held by executives, founders, and other insiders that are restricted from public trading. These restrictions reduce the freely tradeable float and can significantly impact stock price volatility and trading dynamics.

Types of insider locked shares:

• Founder and executive holdings: Shares owned by company leadership, often subject to selling restrictions
• IPO lockup agreements: Contractual restrictions preventing insiders from selling for 90-180 days after going public
• Restricted stock units (RSUs): Equity compensation that vests over time, typically 3-4 years
• Performance-based equity awards: Shares tied to meeting specific financial or operational targets
• Rule 144 restrictions: SEC regulations limiting how much insiders can sell and when

The calculation for available trading shares:

Float = Shares Outstanding - Insider Locked Shares - Institutional Restricted Shares

Why insider locked shares matter:

• Price volatility: A low float relative to total shares increases price swings since fewer shares are available for trading
• Supply dynamics: Large blocks of locked shares can create selling pressure when restrictions expire
• Alignment signal: High insider ownership suggests management has skin in the game
• Governance implications: Concentrated ownership affects voting power and corporate decisions

Lockup expiration effects:

• Increased supply: Newly tradeable shares can overwhelm demand
• Price pressure: Anticipation of selling often depresses prices before expiration
• Volume spikes: Trading activity typically increases around lockup dates
• Volatility clustering: Uncertainty about insider intentions creates price swings

Analysing insider ownership:

• 5-20% insider ownership: Generally positive alignment without excessive concentration
• Above 30%: Strong alignment but potential governance concerns
• Very low ownership: May indicate lack of commitment or past selling

Investment considerations:

• IPO investing: Always check lockup expiration dates before buying recently public companies
• Trading opportunities: Lockup expirations can create buying opportunities if selling pressure is overdone
• Monitoring SEC filings: Form 4 filings reveal when insiders actually sell
• Vesting schedules: Understanding when RSUs vest helps predict future selling

Investors should monitor insider lockup periods, especially for recently public companies, as expiration dates may present both risks and opportunities depending on how the market prices in the expected increase in tradeable supply.