Greenshoe
Sign in to saveAlso known as Greenshoe option
Greenshoe, or over-allotment clause, is the term commonly used to describe a special arrangement in a U.S. registered share offering, for example an initial public offering (IPO), which enables the investment bank representing the underwriters to support the share price after the offering without putting their own capital at risk. This clause is codified as a provision in the underwriting agreement between the leading underwriter, the lead manager, and the issuer (in the case of primary shares) or vendor (secondary shares). The provision allows the underwriter to purchase up to 15% in addition
~10 min read
Encyclopedic overview
10 sectionsContents
- Underwriter short-selling and price stabilization
- Greenshoe clause
- SEC regulations
- Naked short selling and syndicate covering purchases
- Risk to investors
- Reverse greenshoe
- How a regular greenshoe works
- How a reverse greenshoe works
- References
- External links
Greenshoe, or over-allotment clause, is the term commonly used to describe a special arrangement in a U.S. registered share offering, for example an initial public offering (IPO), which enables the investment bank representing the underwriters to support the share price after the offering without putting their own capital at risk. This clause is codified as a provision in the underwriting agreement between the leading underwriter, the lead manager, and the issuer (in the case of primary shares) or vendor (secondary shares). The provision allows the underwriter to purchase up to 15% in additional company shares at the offering share price.
The term is derived from the name of the first company, Green Shoe Manufacturing (now called Stride Rite), to permit underwriters to use this practice in an IPO.
Excerpted from Wikipedia’s “Greenshoe” article, available under the CC BY-SA 4.0 licence.