Some investments by Eletrobras and Nubank were stagnant due to the application of “lock up” by the companies. Understand better.
Estimated reading time: 4 minutes
Recently, investors from Eletrobras and Nubank were prevented from selling their shares for a while, even in the face of a scenario of losses for the companies. The measure is known as “lock up” and it is a contractual clause that determines a period in which sales of shares are prohibited.
In the case of Eletrobras, the sales block remains for one year. As for Nubank’s shareholders, the lock up ended on May 17 for all shares, except for the BDRs (Brazilian Depositary Receipt) granted by the NuSócios program, which should only take place in December.
Beneficiaries of NuSócios BDRs run the risk of seeing the share price plummet and completely losing the benefit value as they cannot carry out any type of trading during this period.
Measure is to contain the movement of “flipping”
According to investment analysts, the measure is essential to avoid the “flip” movement that occurs when the investor acquires shares through an IPO (initial offering) and follow-on (when the company is already publicly traded and issues more subsequent shares. ) and sells on the same day they were placed on the market.
The “lock up” is a tactic used by companies that forces investors to think long term. In addition, it postpones the pressure on the share value when the offer is made, which makes it possible for the company to present solid and reliable fundamentals.
It is up to the company to define the duration of the lock up and whether or not it should occur. In some cases, shareholders can even sell their shares but are obliged to pay fines. In this sense, most of the time it is not worth making the sale and choosing to pay fines.
Advantages and disadvantages for the investor
On the one hand, the measure stagnates the equity of the investor who is prevented from trading for a while. However, it prevents the price from falling significantly in the first days after the offer due to the large number of shares offered for sale.
However, in most cases, the measure works only as a postponement, since with the end of the “lock up”, investors put their shares on the market for sale, which impacts the value of the shares in the same way.
According to analysts, this determination does not necessarily guarantee a positive or negative scenario for the future stock market. It is more related to the investor’s conviction to leave the papers for a longer time, to possibly obtain more gains. They claim that those who invest in the stock market need to think long term.
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