Greenshoe

A greenshoe is an over-allotment option that allows additional shares to be issued at the offer price in a share offering. The option is used when demand is particularly high. This allows more capital to be raised and helps stabilise the share price after the offering. Its size is usually up to 15 percent of the offering.

The mechanism works in two steps: the syndicate banks first allocate more shares than actually exist, taking a short position they cover by borrowing shares from an existing shareholder. If the price falls below the offer price after listing, they buy shares back in the market and support the price. The shares bought back are returned to the lender and the option lapses. If the price rises instead, they exercise the option and take the additional shares at the offer price. In both cases the banks' position is closed, and stabilisation measures are time-limited, usually to around 30 days after listing.

Legally the procedure is an expressly permitted exception to the prohibition on market manipulation, provided the market abuse regulation's requirements on disclosure, duration and price limits are met. For the issuer and the selling shareholders the option means the ability to place a larger volume where demand is strong, without adjusting the price afterwards. Participants should note that stabilisation is an option and not an obligation: the banks decide according to market conditions whether and to what extent to buy back shares, and must publish the measures taken afterwards. For existing shareholders the structure means temporarily lending their shares and only obtaining clarity about the volume actually placed and the proceeds achieved once the stabilisation period ends.