An overallotment option, also known as a “greenshoe,” is an option granted by the issuer to the lead underwriter. The Lead Underwriters are hereby authorized to oversell up to 15% of the Underwritten Shares at the same offering price, i.e., the Lead Underwriters offer to investors up to 115% of the Underwritten Shares.
The overallotment option (Greenshoe option) was first used in the United States during the initial public offering (IPO) of Boston’s Green Shoe Manufacturing in 1963. It is a common name for the overallotment option system. Also called the Green Shoe Option.
Within 30 days from the date of listing of the additionally issued and underwritten shares, the lead underwriter has the right to choose to purchase the issuer’s shares from the centralized auction trading market according to market conditions, or to require the issuer to issue additional shares and allocate them to the over-offered portion that has applied for subscription. investor. The lead underwriter can balance the market’s supply and demand for the stock by exercising the over-allotment option without using its own funds, and play a role in stabilizing the market price.
The overallotment option mechanism is mainly used when the market atmosphere is not good, the outcome of the issue is not optimistic or unpredictable. The purpose is to prevent the share price of new shares from falling to the issue price or below the issue price, enhance the confidence of investors participating in the primary market subscription, and realize the smooth transition of the share price of new shares from the primary market to the secondary market. The “overallotment option” can adjust the financing size according to market conditions, so that supply and demand balance.
Rules for exercise of the overallotment Option:
During the exercise period of the over-allotment option, if the market transaction price of the issuer’s stock is lower than the issue price, the lead underwriter will use the funds obtained from the over-allotment stock to purchase the issuer’s stock from the centralized auction market at a price not higher than the issue price. , allocated to the investors who submitted the subscription application; if the market transaction price of the issuer’s stock is higher than the issue price, the lead underwriter may request the issuer to issue additional shares according to the authorization, and distribute it to the investors who have submitted the subscription application, and the issuer will be issued this part Funds raised from new shares.