Green shoe option reduces post-listing price volatility

By Ashwinee Oturkar, Khaitan & Co
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In August 2003, the Securities and Exchange Board of India (SEBI) introduced the concept of green shoe option (GSO) to the Indian capital markets, with a view to arresting short-term volatility in post-listing prices. The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, provide the framework for GSO.

This article discusses the various aspects of the GSO mechanism.

Outline of the concept

Upon listing, the market price of shares may fluctuate substantially, undermining investors’ confidence in a company. GSO is an option whereby equity shares in excess of the equity shares offered in the public issue are allotted as a post-listing stabilizing mechanism. The GSO mechanism can be adopted in initial public offerings and further public offerings by appointing a stabilizing agent which is usually a book running lead manager to the issue.

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Ashwinee Oturkar is an associate at Khaitan & Co. Khaitan & Co is a full-service law firm with offices in Mumbai, Delhi, Bangalore and Kolkata. Views expressed in the article are those of the author and may not necessarily reflect the views of the firm.

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