Series 79 practice questioneasyStabilization and Aftermarket
Why might underwriters deliberately over-allot shares at pricing?
- ABecause SEC rules require every IPO to be oversold
- BTo eliminate lock-up agreements
- CSo they can cover the short position through market purchases or exercise of the greenshoe✓ Correct answer
- DTo avoid preparing closing documents
Explanation
Why C — So they can cover the short position through market purchases or exercise of the greenshoe
So they can cover the short position through market purchases or exercise of the greenshoe Over-allotment creates a syndicate short position that can be used as part of stabilization strategy. The short can be covered by buying in the market if the stock is weak or by exercising the greenshoe if it trades strong.
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