Series 79 practice questionhardLock-Up Agreements
A company completed its IPO 120 days ago at $35 per share. The stock now trades at $52. The CEO contacts the lead underwriter requesting an early release from the 180-day lock-up to sell 500,000 shares for estate planning purposes. What regulatory requirement applies?
- ANo regulatory requirements apply because lock-ups are purely private contracts
- BThe CEO must wait until the full 180 days have passed regardless of circumstances
- CThe SEC must approve the early release through a no-action letter
- DFINRA requires at least three business days advance notice of any early lock-up release to the market✓ Correct answer
Explanation
Why D — FINRA requires at least three business days advance notice of any early lock-up release to the market
FINRA Rule 5131(d)(2) requires that the lead underwriter announce any release or waiver of a lock-up restriction at least three business days before the release becomes effective. This applies regardless of the reason for the early release. The announcement must include the name of the person or entity released, the number of securities involved, and the reason for the release. This rule was adopted to ensure transparency and to prevent insiders from quietly dumping shares before the market has a chance to react to the news of the lock-up release.
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