What is a greenshoe in an IPO?

A greenshoe is a clause contained in the underwriting agreement of an initial public offering (IPO) that allows underwriters to buy up to an additional 15\% of company shares at the offering price.

What is meant by greenshoe option?

A greenshoe option is an over-allotment option. In the context of an initial public offering (IPO), it is a provision in an underwriting agreement that grants the underwriter the right to sell investors more shares than initially planned by the issuer if the demand for a security issue proves higher than expected.

Why is it called a greenshoe?

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. The use of greenshoe options in share offerings is widespread for two reasons.

Who is IPO underwriter?

IPO underwriters are financial specialists who work closely with the issuing body to determine the initial offering price of the securities, buy the securities from the issuer, and sell the securities to investors via the underwriter’s distribution network.

What is green shoe option in India?

Green shoe option is a clause contained in the underwriting agreement of an IPO. It allows the underwriting syndicate to buy up to an additional 15\% of the shares at the offering price if public demand for the shares exceeds expectations and the stock trades above its offering price.

What is a stabilizing bid?

A stabilizing bid is a purchase of stock by underwriters to stabilize or support the secondary market price of a security immediately following an initial public offering (IPO). After an IPO, the price of the newly issued shares may falter or be shaky in trading.

What is ASBA in stock market?

Applications Supported by Blocked Amount (ASBA) is a process developed by the India’s Stock Market Regulator SEBI for applying to IPO. In ASBA, an IPO applicant’s account doesn’t get debited until shares are allotted to them. ASBA means “Applications Supported by Blocked Amount”.

Who is called underwriter?

An underwriter is any party that evaluates and assumes another party’s risk for payment. Underwriters work in many areas of finance, from the insurance industry to mortgage lending. Underwriters determine the level of the risk for lenders. A book runner is another name for a lead underwriter.