What Is Locked In?
Locked in describes a situation wherein an investor is unwilling or unable to trade a security because of regulations, taxes, or penalties associated with doing so. This may occur in an investment vehicle, such as a retirement plan that an employee may not access before a specified retirement date.
Key Takeaways
- An investor is "locked in" when they are unwilling or unable to trade a security because of regulations, taxes, or penalties that prevent it from being profitable or make it illegal to do so.
- Stocks, options and warrants offered under employee incentive programs, which usually come with a mandatory vesting period, can all become locked in.
- Shares issued in initial public offerings are often locked in by rules that aim to prevent company insiders from gaining an unfair trading advantage.
Understanding Locked In
If there is an increase in the value of stocks held by an individual, the shareholder will be subject to a capital-gains tax, with some exceptions. To reduce the tax burden, an investor could shelter these gains in a retirement account. The individual is considered locked in because if a portion of this investment is withdrawn prior to maturity, the owner will be taxed at a higher rate than if they hadwaited.
Locked-in securities can describe stock, options, and warrants offered to employees under incentive programs that promote company loyalty and encourage strong performance. Many of these programs come with mandatory vesting periods during which the employee has been granted the securities but may not yet exercise them (meaning converted to cash or stock).
Typically, such shares or warrants must be held for several years before they can be exercised. There may be phases of the locked-in period when, at stipulated intervals, the shares change ownership or tax status.
Even after options or warrants have been converted into stock and granted to an employee, there may be another holding period before they can sell those shares. In such instances, the employees usually receive the options at the market price at the time they were granted, which may represent a deep discount to the market price when they are exercised. Depending on when the stock is sold, the proceeds might be taxed at a lower rate than initially imposed.
Reasons for Locked-In Shares
When a company launches an initial public offering (IPO), or a first-time issue of its stock to the general public, there may be lock-in stipulations on shares held by founders, promoters, and other early backers of the company. This is to prohibit these people, as company insiders, from selling or transferring shares during the IPO period, when they might have advantageous company information that outside investors don't.
This period might last 90 days or even several years after the IPO. A lock-in period mitigates the possibility of such manipulation by restricting insider trades.
Executives and senior management might also be compensated with locked-in shares that are not released for a period of time after they are initially granted in order to encourage superior performance.
FAQs
The term job lock is used to describe the inability of an employee to freely leave a job because doing so will result in the loss of employee benefits (usually health or retirement related).
What does it mean if someone says "locked in"? ›
When someone says you are “locked in,” it typically means that you are committed or dedicated to a particular course of action or decision. It can also imply being deeply focused or immersed in a specific task or mindset.
What does it mean when a person is locked in? ›
: affected with, characterized by, or relating to the locked-in syndrome. Locked-in patients have lost the ability to control the body voluntarily, but they retain some ability to control the face. Often they can move only their eyes. Although they are conscious, they are unable to communicate.
What does it mean to be locked in for something? ›
Lock it in / lock in is an idiom meaning to finalize, make permanent. It is not used as a response to a question like the one above, but only used when something is to be made permanent such as an offer, a price, a commitment, etc.
What does it mean when someone says lock it in? ›
commitment, binding, or restriction.
What does I got you locked in mean? ›
Usually, it's used in a contractual setting, meaning firmly agreed or guaranteed some term.
What is another word for "locked in"? ›
apprehend commit detain hold incarcerate jail lock up remand.
When a man says we are locked in? ›
The 'locked in relationship' refers to a situation where the person is not interacting with others, possibly due to discomfort or resentment.
What does "locked into" mean? ›
to prevent a person or organization from ending or changing an agreement or financial arrangement: The gas company is locked into long-term supply contracts.
What does locked-in mean in psychology? ›
Share button. Updated on 11/15/2023. a condition in which a person cannot speak or move but is fully cognizant and aware of their surroundings.
The most common way for people with locked-in syndrome to communicate is through eye movements and blinking. Nowadays, there are computer programs and other assistive technologies that can help them communicate with others, such as brain-computer interfaces , head-mouse devices , and infrared eye movement sensors .
What does it mean when someone says you're locked in? ›
informal. exhibiting total concentration on the task in hand.
What does get it locked in mean? ›
to get and keep an advantage such as a low price: People are jumping to purchase homes and lock in affordable mortgage rates before they increase. If you find a rate that works for you, lock it in.
What is a lock in situation? ›
In economics, vendor lock-in, also known as proprietary lock-in or customer lock-in, makes a customer dependent on a vendor for products, unable to use another vendor without substantial switching costs.
What is the meaning of lock work? ›
: the mechanism on or in locks : the parts of a lock.
What does it mean to be locked out of work? ›
A lockout is imposed by the employer. It means the employer prevents the workers from attending work. The employer does this in order to scare members of the union into accepting deep cuts and take-aways to their working conditions, wages and benefits.
What is the meaning of getting locked in? ›
to be prevented from moving by something: We were locked in traffic for over two hours on the way home. If you are locked in a situation or process, it is impossible for you to escape or make progress from it: Both parties wish to avoid being locked in discussions that will resolve nothing. Immobility.
Can my employer lock me in? ›
No. False imprisonment can occur in a few different ways. The most common way is if an employer refuses to allow you to leave a room. The employer might do this by locking you in a room, or by placing someone at the door to the room to prevent you from leaving.
