Series 79 practice questionmediumGreen Shoe Option
In a firm commitment underwriting, what is the primary purpose of the Green Shoe option?
- ATo increase the underwriter's profit margin
- BTo allow insiders to sell additional shares
- CPrice stability through overallotment coverage✓ Correct answer
- DTo guarantee a minimum share price after the offering
Explanation
Why C — Price stability through overallotment coverage
The Green Shoe option helps maintain price stability by letting underwriters cover shorts without destabilizing the market. The trap is thinking it’s about increasing profits or supporting insider sales.
Turn it into reps
Reading one answer is not the same as being ready
Lucky the Banker is a free practice app with 995+ Series 79 questions, weak-area tracking, and timed mock exams. No credit card, no paywall.
Spot an error in this question or explanation? Tell us — we fix these fast.
Related Underwriting & New Financing questions
- According to Regulation M, which of the following is true regarding stabilization bids after an IPO?
- If an underwriter exercises the Green Shoe option to cover a short position created by overallotting shares, but the…
- Which of the following parties may be liable under Section 11 of the Securities Act for a material misstatement in a…
- A red herring (preliminary prospectus) typically omits which of the following pieces of information?
- A company is preparing for an IPO and must submit listing applications to U.S. exchanges. Which of the following is…
- What is the typical size of a Green Shoe (overallotment) option in an IPO as a percentage of the base offering?
- Which of the following is a requirement for affiliates selling restricted securities under Rule 144?
- During the IPO book-building process, which of the following is the main objective?