Prior to the new standard, investors took different approaches to determining the fair value of an equity security that is subject to a lock-up. Some investors, primarily investment companies, factored the effects of the contractual restriction into the instrument’s fair value. Others, including many commercial companies, did not.

The new standard states that a contractual sale restriction is not a characteristic of the security. Therefore, the fair value of an equity security that is subject to a lock-up agreement or similar contractual sale restriction ignores the prohibition on sale.

Additional disclosures about contractual restrictions are required. For public companies, the new rule is effective for fiscal years beginning after December 15, 2023.

Private companies may defer adoption for an additional year. Transition is prospective, with special transition rules for investment companies.