Green Shoe Mechanism For New Shares In Hongkong

Green shoes are named after the United States, known as the Boston green shoe manufacturing company's first public offering (IPO) in 1963. It is the common name of the over allotment option system, also known as greenshoeoption.

Green shoe mechanism is mainly used in the market atmosphere is not good, the result is not optimistic or unpredictable. The purpose is to prevent the share price from falling to the issuing price or issuing price after the IPO is released, enhancing the confidence of investors participating in the primary market subscription, and achieving the smooth transition of the new share price from the primary market to the two level market. The adoption of "green shoes" can regulate the scale of financing according to market conditions, so as to make the supply and demand balance.

Excess placement option refers to issuers. shares One of the principal underwriters granted for a period of time after the listing. Option 。 In accordance with the established practice, the authorized underwriter sells the shares at an excess of 15% of the underwriting amount at the same issue price, that is, the principal underwriter shall sell the shares to investors at no more than 115% of the underwriting amount.

Within 30 days from the date of the issuance of the underwriting part, the main underwriter will exercise the issue price when the stock price rises. Green shoe option From the issuer, an excess of 15% shares is bought to clear the excess of the excess and to charge the excess sale. At this point, there is no need to pay high price to buy the market, it is only necessary for issuers to issue more corresponding shares to Underwriters. The actual issue amount is 115% of the original value.

When the share price falls, the main underwriter will not make the option. Instead, he will repurchase excess stock from the two tier stock market to support the price and hedge the short end (Ping Cang) in order to earn the middle price difference. At this point, the actual quantity of issue is equal to the original quantity, that is, 100%. As the market price is lower than the issue price, the underwriter will not lose.

Almost every new issue in the international market has green shoes. In practice, the number of excess sales is negotiated between the issuer and the main underwriter, generally within the scope of 5%~15%, and the option can be exercised partially. At the same time, when the Underwriters exercise the excess allotment rights, there are also some variables.

Exercising excess allotment rights can be more capital for listed companies. For underwriters, they can obtain more underwriting fees in proportion, which is conducive to the successful issuance of new shares, and to some extent, protect the interests of investors. Therefore, it is a win-win arrangement.

Another added effect is that over allotment stocks are generally allocated to investors closely related to the underwriting group. Because the placement price is consistent with the issue price and lower than the market price, investors can make a profit, and the lead underwriter can further consolidate the relationship with the consortia.

In the case of permission to sell short, if the excess placement is not approved by the issuer, it is known as "bareshoe". Once the share price rises, the underwriter will have to repurchase the shares which he has over allotment at the price above the issue price, thereby suffering economic losses.