GREENSHOE OPTION



2
Please explain Greenshoe option in detail. Is it only offering additional shares to the investment bank or the shares are issued in addition to the fee charged for underwriting the subscription ? Are the additional shares only issued in case of over subscription of shares ?

1 Answer(s)


1

Under green shoe option underwriters are allowed to sell upto 15% additional shares than the original issued shares.When an issue is oversubscribed then this option can be undertaken to bring stability to the price of a security. Over subscription means there is more demand than supply for the underline security and this mismatch can result in the huge fluctuations to the price of security post listing and in order to bring the confidence and stability to the price additional issued shares are under Green shoe option are supplied in to the market.