Why IPO Stocks Can Crash 6 Months After Listing: Lock-Up Period & Cornerstone Investors Explained

Many new investors are puzzled by a pattern that keeps repeating on Bursa Malaysia: an IPO stock pops on listing day, everyone looks profitable on paper, but six months later the same stock plunges and many get stuck. What is actually happening behind the scenes?

The answer almost always comes back to two things retail investors rarely understand: cornerstone investors and the lock-up period (known in Bursa Malaysia terms as the moratorium). When this restriction expires, usually around six months after listing, the supply of shares in the market can surge sharply and push the price down. This article explains the full mechanism so you do not become the one who buys at the peak.

Quick Answer: Why Do IPO Stocks Crash After 6 Months?

IPO stocks can crash roughly six months after listing because that is when the moratorium (lock-up period) on major shareholders and cornerstone investors expires. Before that, they are barred from selling, so the supply of tradable shares is limited and the price stays "supported". Once the lock is released, some of them begin selling to realise their gains, supply surges, and if demand is not strong enough, the price falls. Investors who understand this dynamic often start selling earlier as a precaution, making the drop even sharper.

What Is a Lock-Up Period (Moratorium)?

A lock-up period is a window during which a company's original owners, directors, large shareholders, and certain investors are barred from selling their shares after a company lists. The purpose is simple: to prevent "insiders" from dumping their shares immediately after the IPO and causing the price to collapse in the first week.

According to the US Securities and Exchange Commission (SEC) via Investor.gov, most lock-up agreements in the United States prevent insiders from selling for 180 days, which is roughly six months. In Malaysia, the same concept exists but it is not merely a voluntary agreement. It is a regulatory obligation set by Bursa Malaysia and is known as the moratorium.

The function of the lock-up is to stabilise the price during the early listing phase. It gives the market time to value the company based on actual performance rather than IPO hype. But it also creates a hidden "expiry date": the day the lock-up ends, when all the previously locked shares suddenly become sellable.

Bursa Malaysia Moratorium Rules: Not All 6 Months Are Equal

This is the part many investors miss. The Bursa Malaysia moratorium is not a single lock that opens all at once; instead it is released in stages. According to the Bursa Malaysia Listing Requirements and a summary by Grant Thornton Malaysia, the moratorium structure on major shareholders (specified shareholders) works as follows:

• First 6 months (from the listing date): Promoters, controlling shareholders, and executive directors who are substantial shareholders cannot sell any of their shares at all.
• The next 6 months: At least 45% of their total holding must remain locked, while the remainder may be released.
• After that: They may sell up to a maximum of one-third (1/3) per year on a straight-line basis of the shares still under moratorium.

This means the most critical date for most IPO stocks is the end of the 6th month. This is when the door begins to open, and for some companies, a large block of shares can enter the market within a short period. A "specified shareholder" refers to a controlling shareholder, a person connected to them, and an executive director who is a substantial shareholder.

For investors, this moratorium expiry date should be a date in your calendar, just as important as a quarterly earnings date. Many overlook this share-supply issue, just as they overlook the small free float issue that can also cause price instability.

What Is a Cornerstone Investor & Why Do They Matter?

A cornerstone investor is a large institutional investor, such as a pension fund, asset management firm, insurance company, or sovereign wealth fund, that agrees to buy a large block of IPO shares before they are offered to the public. In exchange, they are usually bound by their own lock-up period.

Why do companies like cornerstone investors? Because the presence of a big name signals confidence to the market. When a well-known institutional fund invests early, it is as if to say "we believe this company is worth it". This helps generate demand and usually contributes to a price jump on the first day of listing. According to an analysis of cornerstone investment trends by Clifford Chance, this approach has become increasingly common in large IPOs across Asia.

But here is the risk. Cornerstone investors are not "forever" investors. Many of them are fund managers with their own return targets. Once their lock-up expires, if the price has risen nicely, some will realise their gains. In Hong Kong, for example, the stock exchange there generally requires cornerstone shares to be locked up for six months after listing even when the investor is not a controlling shareholder. When these six months pass, a large block of institutional shares can enter the market at once.

Why Can Released Share Supply Make the Price Crash?

It all comes back to a basic economic law: supply and demand. Throughout the moratorium period, the supply of tradable shares in the market is limited because a large portion of holdings is locked. This limited supply supports the price, and sometimes even makes the price look higher than the company's actual value.

When the lock opens at the 6-month mark, the situation changes abruptly:

• Supply surge: Shares that were previously "frozen" can now be sold. If many large holders decide to sell at the same time, market supply spikes.
• Imbalanced demand: If the IPO hype has faded and there is no new catalyst, demand cannot absorb this additional supply. The price falls to find a new equilibrium.
• Anticipation selling: This is the most cunning part. Because many market players know the moratorium expiry date, they start selling a few days or weeks earlier to avoid getting trapped. This can cause the price to start falling before the actual lock-up expiry date.

The key determining factor is how many shares are locked relative to the free float. If a large portion of the company's shares is locked and the free float is small, the effect of the moratorium release can be very large. That is why understanding the shareholding structure is an essential part of proper IPO investment risk analysis.

A Mechanical Example: How a Supply Shock Happens

Imagine a company lists 200 million shares. Of that total, 150 million shares (75%) are held by founders and cornerstone investors under moratorium, while only 50 million shares (25%) are the actively traded free float. Throughout the first six months, the market only "plays" with those 50 million shares, so even small demand can push the price up.

Now consider what happens when the moratorium begins to loosen. If just 10% of those locked shares (15 million shares) enter the market within a short period, the tradable supply can jump from 50 million to 65 million shares, a 30% increase in supply. If demand does not rise by that much, the price has to fall to find new buyers. This is not a sign the company is bad; it is simply the mathematics of supply and demand playing out mechanically.

Cornerstone, Anchor & Strategic Investors: What Is the Difference?

You may come across different terms in a prospectus. A cornerstone investor commits to buying shares at the IPO price before the order book opens, and their name is disclosed to attract market confidence. An anchor investor is usually an institutional investor given a share allocation in the early phase but at a price determined later. A strategic investor is often a business partner or a company in the same industry that invests for the long term, not just for trading gains.

The difference matters because each group has different motivations and lock-up periods. Strategic investors tend to stay longer, while cornerstone and anchor investors are more likely to sell after the lock-up if the price is attractive. Reading who the large shareholders are and what motivates them gives you a clearer picture of the selling pressure that may come.

Warning Signs: How to Spot It Before the Crash

The good news is, this information is not secret. It is all in the IPO prospectus. Before you buy an IPO stock or hold it, check the following:

• Moratorium expiry date: Count six months from the listing date. Mark it in your calendar as a high-risk date.
• Percentage of locked shares: How many shares are under moratorium relative to total issued shares? The higher the percentage, the greater the potential "supply shock".
• Free float size: A small free float means the price is more easily moved by large sales. Read more about the free float issue in IPOs.
• Cornerstone investor holdings: How large is the block held by institutions, and when does their lock-up expire?
• Current price performance: If the price has risen far above the IPO price, the temptation for large holders to realise gains when the moratorium ends is higher.

Malaysian Market Reality: Not All IPOs Are the Same

It is important to understand that moratorium expiry is not a guarantee a stock will crash. It is only one risk factor. A company with strong business fundamentals, consistent earnings growth, and continued investor demand can absorb the share release without a major drop. Conversely, a company whose price rose purely on hype is more exposed.

We have also seen on Bursa Malaysia that not all IPOs start strong. Some fell below the offer price on the first day like the Gold Li IPO, and others opened at a discount like the One Gasmaster (OGM) debut. This shows that "IPOs must be profitable" is a myth. Supply-demand dynamics can pressure the price at any time, whether on the first day or after six months.

With more than 50 companies expected to list on Bursa Malaysia in 2026, investors need to be more careful and not chase every IPO blindly. Understanding the lock-up schedule is an additional layer of protection.

What Should Investors Do?

Here is a practical approach to managing lock-up and cornerstone investor risk:

• Do not chase the first-day pop blindly. IPO pops are often supported by limited supply, not necessarily actual value.
• Read the moratorium section in the prospectus. It must be disclosed. Know when the lock expires and how many shares are involved.
• Consider waiting. Some investors deliberately wait until after the moratorium expires to see the company's "real" price once selling pressure eases.
• Focus on fundamentals, not hype. Companies with healthy earnings and cash are better able to withstand an increase in share supply.
• Diversify. Do not put all your capital in one IPO. Spread your risk.

Frequently Asked Questions (FAQ)

1. What is the difference between a lock-up period and a moratorium?

Both refer to the same concept: a period during which selling shares is prohibited after an IPO. "Lock-up period" is the international term (especially in the US), while "moratorium" is the official term used in the Bursa Malaysia Listing Requirements. In Malaysia, the moratorium is a regulatory obligation, not just a voluntary agreement.

2. How long is the moratorium period on Bursa Malaysia?

Major shareholders cannot sell any shares for the first 6 months from the listing date. After that, at least 45% of their holding remains locked for another 6 months, and the rest is released in stages up to 1/3 per year.

3. Will a stock definitely fall after the moratorium expires?

No. Moratorium expiry only adds a supply risk factor, not a guarantee of a fall. Companies with strong fundamentals and continued demand can absorb the share release without a major drop. Hype without fundamentals is more exposed.

4. How do I know when a stock's moratorium expires?

This information is disclosed in the IPO prospectus under the moratorium or "moratorium on shares" section. Count 6 months from the listing date for an estimate of the first critical date.

5. Do cornerstone investors always sell after the lock-up?

Not necessarily. Some cornerstone investors are long-term holders who stay. However, many fund managers have return targets, so if the price has risen significantly, the likelihood of them realising some gains is high.

6. What is free float and why does it matter here?

Free float is the percentage of shares that are genuinely freely traded by the public, not locked or held by insiders. A small free float means the price moves more sharply when additional supply enters after the moratorium expires.

7. Should I avoid all IPO stocks because of this risk?

No. Quality IPOs with strong fundamentals can still be good investments. The key is to understand the risk, read the prospectus, and not buy simply because of hype or a first-day pop.

Conclusion

The pattern of IPO stocks crashing six months after listing is not a coincidence or bad luck. It is often the result of a predictable mechanism: the expiry of the moratorium and cornerstone investor lock-ups that surge the supply of shares in the market. Investors who understand this dynamic are in a far better position to avoid buying at the peak and getting stuck during the fall.

The next step for those serious about investing on Bursa Malaysia is to ensure you have access to buy and sell shares easily, along with the basic knowledge to evaluate every opportunity.

To start investing on Bursa Malaysia as well as foreign stocks such as the United States and Hong Kong, you can open a CDS and trading account here.

You can also download the Stock Market Basics Ebook for free to understand key concepts such as IPOs, moratoriums, and risk analysis before you invest.

Further Reading

• Investment Risk Analysis: Stock & IPO Risk Management Strategy
• Bursa Malaysia Assures: The 'Free Float' Issue Is Not a Big Problem
• Gold Li IPO Performance: Why the Stock Fell Below Offer Price on Day One
• One Gasmaster (OGM) IPO Debut: Stock Falls Below Offer Price
• Malaysia 'Champion' of Southeast Asia IPOs: Over 50 Companies to List in 2026