Series 79 practice questioneasyStabilization and Aftermarket
What is the greenshoe option in an IPO?
- AA right of retail investors to rescind trades
- BAn over-allotment option that allows underwriters to purchase additional shares, often up to 15% of the base deal size✓ Correct answer
- CA covenant in high-yield indentures
- DA lock-up waiver for company insiders
Explanation
Why B — An over-allotment option that allows underwriters to purchase additional shares, often up to 15% of the base deal size
An over-allotment option that allows underwriters to purchase additional shares, often up to 15% of the base deal size The greenshoe helps underwriters cover over-allotments and manage aftermarket stabilization more efficiently. It also gives the issuer a mechanism to raise extra capital if demand is strong.
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