Green shoe option

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hardipsinh (Querist)
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04 April 2015 Please explain provision of green shoe option for understanding its purpose and how its work in real world

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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04 April 2015 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. The investment banks and brokerage agencies (the underwriters) that take part in the greenshoe process have the ability to exercise this option if public demand for the shares exceeds expectations and the stock trades above the offering price.

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http://www.investopedia.com/articles/optioninvestor/08/greenshoe-option-ipo.asp

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