End of Lock Up in Shopify Inc.: Golden Investment Opportunity & Related Bangladesh Perspective

Shopify Inc., e- commerce software giant and registered in Wall Street fell to its lowest share value in two months as shareholders bet the lifting of sales restrictions on company insiders and early investors could pull the high-flying stock down.

The software company’s  stock  lockup  ends  on January 12,  giving Shopify’s  venture  investors  and  employees  the  right  to  sell  more  than  67  million  shares  held  at  the company’s initial public offering  that  occurred  in May, said Katie Keita, director of investor relations at Shopify.

The company’s stock fell 3.5 percent to $27.35 at the close of January 4 in New York, the lowest price since September 14.  So, golden opportunity for bagging a sufficient number of shares at comparatively lower prices starts from today.

Lock up is an investment terminology and an effective instrument in maintaining steadiness in terms of share value.  During the predefined period of prevailing lock up mode, investors are barred to dispose of their  shares  and  after  end  of  that,  usually  a  huge  number  of  shares  are  available  for  selling.  Larger supply in a particular moment, whenever demand remains static, causes dramatic fall in share price.  So the higher profit seeking investors wait for cease of lock up mode as is going to be happened in case of Shopify Inc. as mentioned earlier.

 In  Bangladesh  Perspective,  Lock  Up  is  almost  an  unknown  event  for  the  commoners,  though  capital market suffers immensely due to this factor. For instance, we may consider the scenario in case of most booming investment sector, the banking sector. 

As per local regulations set up by Bangladesh Bank (Central Bank of Bangladesh), sponsor directors (Maximum 5 in number) are bound to raise BDT 400 crore aiming to get approval  from Banking Division of Finance Ministry,  for  setting up a new scheduled commercial bank.

The sponsor Directors are forced to retain those shares for a minimum period of 1 year. After  ending  of  the  Lock  Up  Period,  the  Sponsor  Directors  are  allowed  to  liquidate  their  shares.

After release of IPO, the number of Directors increases and if law permitted, sponsor directors would be able  to  liquidate  their  additional  shares  then,  since  existing law  allocates  retention  of  shares  for  BDT 30.00 crore by the Board of Directors i.e, the board comprising of 15 directors.

As an ominous impact of Lock  Up  mode,  a  huge  number  of  shares  of  the  new  nine  banks,  retained  by  the  Sponsor  Directors flourished the stock market and eventually, Banking Sector in capital market saw a sudden  debacle in share prices during  March, 2015. Declaration of alluring cash and stock dividends could not hold unit share price in a reasonable value. 

Rumors  caused  downfall  in  share  prices  for  the  older  29  listed scheduled  commercial  banks.  Lack of proper knowledge on capital market terminologies, made the other banks to embrace the same fate apparently for no logical reason.