Preferential allotment lock-in
Also written Preferential issue lock-in
The mandatory holding period on shares from a preferential allotment by a listed company — 18 months for promoters and the promoter group, 6 months for everyone else, both from the date of trading approval.
In plain language
A private placement made by a listed company has a special name: a preferential allotment. Because the company already has public shareholders, SEBI does not let the new shares trade freely from day one.
Instead, they are locked in — the holder cannot sell them until a fixed period has passed. How long that period is depends on who received the shares.
How it works
Shares allotted to the promoter or promoter group in a preferential allotment are locked in for 18 months from the date of trading approval. Shares allotted to anyone else are locked in for 6 months from the date of trading approval.
Both clocks run from trading approval, not from the date of allotment or the date the resolution was passed — a distinction the workbook is explicit about. As with any private placement by a listed company, a shareholder resolution is required to authorise the allotment in the first place.
A worked example
Girnar Industries Ltd makes a preferential allotment of 25 lakh shares at Rs 220, of which 15 lakh shares go to the promoter group and 10 lakh shares go to two institutional investors outside the promoter group.
Trading approval for the new shares comes through on 1 April.
| Allottee | Shares | Lock-in ends |
|---|---|---|
| Promoter group | 15 lakh | 30 September, 18 months later |
| Institutional investors | 10 lakh | 30 September, 6 months later |
If the promoter group tries to pledge or sell any of its 15 lakh shares in, say, month 10, the transaction cannot be registered — the lock-in is enforced at the depository and registrar level, not left to the seller's discretion.
Why NISM asks about it
Chapter 8, introductory paragraph before section 8.1. Expect the 18-month promoter lock-in and the 6-month non-promoter lock-in, and that both run from trading approval. This pair of numbers is frequently tested against the different lock-in periods that apply to promoter contribution in a public issue, which are separate rules with their own timelines.
Common exam traps
- 18 months is for the promoter/promoter group; 6 months is for everyone else in a preferential allotment specifically — do not carry these numbers over to public-issue promoter lock-in, which uses different periods.
- Both clocks start at trading approval, not at allotment.
- A shareholder resolution is a precondition for the allotment itself, separate from the lock-in that follows it.
Where this is taught
Free preparation for NISM Series II-ARelated terms
- Employee Stock OptionThe right, not the obligation, given to an employee to buy company shares at a fixed price after a minimum one-year vesting period — the RTA administers the grant; tax treatment is a separate topic.
- Identified PersonsThe select group a company names to receive a private placement under Section 42 — capped at 50 allottees a year excluding QIBs and ESOP employees, with allotment within 60 days or a mandatory refund.
- Promoter lock-inThe rule that promoters' shares cannot be sold for a set time after an IPO — 18 months for the minimum 20 percent contribution, or 3 years if most proceeds fund capital expenditure; 6 months or 1 year for the excess.