Editor’s note: This is general educational information about the share sale restrictions that apply at a listing. It is not investment advice, and the rules, periods and dates below are taken from the official documents listed at the end.
Analysis: A Lockup Is a Statement About Supply, Not About Quality
The instinct to read a long lockup as a sign of commitment, and a short one as a warning, gets the mechanism backwards. The period is set by rule and by underwriting practice, not by the holder’s conviction, and in Korea the observed problem was that companies defaulted to the six-month minimum rather than choosing a term at all. What a lockup schedule actually describes is the timing of a known future increase in tradeable supply.
That makes the disclosure the useful part. Korea requires the identity of locked insiders, their holdings and their periods to be disclosed at the IPO, and the staggered system exists so that those dates do not coincide. The ASX system goes further in one respect by removing escrowed stock from free float and spread calculations, which means the same company presents a smaller tradeable base at listing and a larger one when escrow ends.
Three questions follow from that framing. How much of the register is locked, since a small free float and a large locked block make the price on listing day a thinner signal than it appears. When do the periods end, and whether they end together or in the staggered pattern the FSC has been pushing toward. And whether the restriction is a contractual promise by a holder or a lock applied to the securities themselves on a subregister, because those two things fail in different ways.
None of this predicts what a holder will do when a period ends. It establishes when they will first be able to act, which is a date, not a judgment, and is written down in advance.
What the documents say
Listing day converts private holdings into tradeable stock, and the people who own the largest blocks are usually the ones who could move the price most by selling. That is why almost every listing regime attaches a period during which insiders cannot sell. Korea’s version lives in the Korea Exchange listing regulation, runs for a minimum of six months, and has been reworked twice in recent years, once to close a loophole and once to stop everyone reaching the exit on the same day.
What the Korean Rule Restricts
The IPO lockup rules under the KRX listing regulation prohibit the sale of a newly listed company’s stock held by insiders for a period, usually six months. The Financial Services Commission states the purpose plainly: to protect investors from the price volatility a large-scale sellout can produce, and to promote fair price discovery.
The loophole the FSC identified on February 22, 2022 concerned stock options. The lockup applied to shares acquired by exercising options before the listing, but not to shares acquired by exercising options after the company went public, so whether a holding was locked depended on when the holder chose to exercise. The FSC’s change applies the lockup to all insider holdings regardless of when options are exercised, and the amendment took effect immediately after approval by the Securities and Futures Commission and the FSC in March 2022.
The Second Problem Was the Cliff
Closing the loophole created a different question, which is what happens when every restriction expires at once. The FSC observed that most newly listed firms simply applied a six-month lockup to all insider holdings, even though six months is the minimum the regulation requires rather than the expected term. The consequence is a predictable concentration of sell orders at the moment the period ends.
The remedy was a staggered lockup contract system, under which a newly listed company may voluntarily apply different periods to different insiders, such as the chief executive and board members, running from the initial six months up to two years. Information about who is subject to a lockup, their shareholding and the applicable period is disclosed through the stock registration made in the IPO.
The same logic reappears in the cornerstone investor rules the FSC proposed on July 30, 2026 under the revised Financial Investment Services and Capital Markets Act expected to take effect from November 13, 2026. Cornerstone investors must observe a lockup of six months for 50 percent of their allocated shares, eight months for 30 percent and ten months for 20 percent, which the FSC says is designed to prevent an excessive concentration of share sales on a particular day. Korea has now applied the staggered principle to both ends of the register, to the insiders who held the company before the listing and to the institutions that bought into it.
Australia Locks the Shares Rather Than the Holder
The ASX approach is worth comparing because it restricts the securities rather than relying on an undertaking by the person. Under Chapter 9 of the ASX Listing Rules, an entity with restricted securities on issue must either enter into a restriction deed with the holder and each controller, in the form set out in Appendix 9A, or give the holder a restriction notice in the form set out in Appendix 9C, applying the escrow restrictions in Appendix 9B or such other restrictions as ASX decides. The deed or notice prohibits the holder from disposing of, or agreeing or offering to dispose of, the securities except as permitted.
Enforcement is mechanical rather than contractual. The entity’s constitution must contain supporting provisions while restricted securities are on issue. Quoted restricted securities must be held on an issuer sponsored subregister with a holding lock applied, and unquoted ones on a certificated subregister with the certificate held in escrow by a bank or recognised trustee. Appendix 9B specifies both the categories of securities that ordinarily fall into escrow and the period that ordinarily applies to each category, and ASX retains a discretion to classify other securities as restricted.
There is a second-order effect that matters for anyone assessing a new listing. Restricted securities are excluded from the definition of free float and therefore do not count toward the 20% minimum free float required for admission to the official list, nor toward the minimum spread requirement. Escrowed stock is not merely unsellable. It is not counted as part of the tradeable company at all.
Lockups Also Do Work in Restructurings
The Korean rules recognise that the sensitive moment is not always a first listing. When the FSC set out measures on September 5, 2022 to protect general shareholders in the IPO of a split-off subsidiary, it described the underlying grievance: unlike a spin off, a split off gives the parent’s shareholders no shares in and no rights over the subsidiary, and the parent’s share price tends to fall, while research suggests the valuation of the fast-growing split-off business is not necessarily reflected in the parent’s stock. The FSC tied that directly to the Korea discount, arguing that a share’s worth consists of a right to participate in decisions and a right to claim present and future profits.
The disclosure remedy runs on a short clock. A company planning a split off must disclose the specific purpose, whether business restructuring, sale or listing, along with investor protection measures, in a material information report within three days of the board decision, and where a subsequent IPO of the subsidiary is planned it must disclose the expected schedule and file a corrective disclosure if the plan changes.
