A process designed to smooth out price fluctuations after a company has issued new shares. The investment bank involved will actually sell more shares than it has initially contracted to. If the market is strong, and the shares are taken, the bank will go the company and ask for the additional shares to be issued to satisfy the demand. However, if appetite for the issue is weak the bank will buy the shares back as if they have effectively never been issued.
portion of the underwriting agreement which allows the underwriters to buy more shares.
A special regulation between the issuing bank and the issuer during an issue to stabilise the price (buffer). It is used if the demand for the shares of a company during the Bookbuilding exceeds the targeted issue volume. In that case, further shares are offered for sale. The full exercising of a Greenshoe is a sign of a successful IPO. The name Greenshoe refers to the IPO of a US company with the same name which first constructed this option and exercised it for the first time. Synonym: Additional allocation reserve.