The principle and function of the green shoe mechanism, why is it called the green shoe mechanism? T

The over-allotment option is an option given by the issuer by the issuer to require the issuer to issue an additional amount of ** (usually no more than 15% of the initial issuance** quantity) within 30 days after the listing of ** according to the market subscription status to distribute to investors who apply for subscription for this over-allotment portion.

or purchase from the secondary market at a price not higher than the issue price, or both, that is, the lead underwriter sells shares to investors at a price not exceeding 115% of the underwritten amount**.

In the case of the implementation of the greenshoe mechanism, the underwriter can stabilize the share price of the new shares by exercising the right to over-allotment. If the **** falls below the issue price, the lead underwriter can exercise the funds raised by the over-allotment to purchase ** from the secondary market and maintain the stock price.

If the number of shares is higher than the issue price, the lead underwriter may require the issuer to issue new shares to investors who subscribe for over-allotment in accordance with the issuance plan, so that the number of shares increases, and if the demand remains unchanged, the number of shares will decrease, closer to the issue price.

Within 30 days from the date of listing, the underwriter may choose to issue 15% more shares (generally not more than 15%) of the predetermined size of the same issue**.

The principle of the greenshoe mechanism:

The over-allotment option is an option granted by the issuer to the lead underwriter for a period of time after listing. In accordance with the usual practice, the lead underwriter under this authority over-sells shares not exceeding 15% of the underwritten amount under the same issue**, i.e., the lead underwriter offers shares to investors at a share amount not exceeding 115% of the underwritten amount.

Within 30 days from the date of listing of the underwriting part of the additional issuance, when the stock price rises, the lead underwriter will exercise the greenshoe option at the issue price, purchase 15% of the excess amount from the issuer to offset its own over-offering short, and charge the over-offering fee.

At this time, there is no need to spend ** to buy in the market, only the issuer needs to issue a corresponding number of shares to the underwriter. The actual total number of issuances is 115% of the original plan

When the stock price is **, the lead underwriter will not exercise the option, but will buy back the over-issued ** from the **secondary market to support** and hedge the short position (close the position) in order to earn the mid-price difference. At this time, the actual number of issues is equal to the original amount, that is, 100%. Since the market price is lower than the issue price at this time, the lead underwriter will not suffer a loss by doing so.

So why is it called the greenshoe mechanic? What is the principle and function of the green shoe mechanism?

1. Why is it called the greenshoe mechanism?

The greenshoe mechanism and the over-allotment option system are thought to have been first adopted by a greenshoe manufacturing company in Boston, USA, so it is named the greenshoe mechanism.

Second, the principle and function of the green shoe mechanism

There are generally three types of participants in a new share offering: the issuer, the lead underwriter and the investor. The greenshoe mechanism is a kind of lead underwriter option, that is, the underwriter can choose to issue 15% more shares (generally not more than 15%) than the predetermined size of the same issue ** within 30 days from the date of listing.

Of course, you can also choose to abstain from exercising, depending on the trend of the new shares after listing.

**After listing, it is nothing more than ** or broken two situations. If the stock price is **, then the underwriter can exercise the right to require the listed company to issue an additional 150,000 shares to investors, and the underwriter can earn more fees from it, and the listed company can also raise more funds. The issuance of more ** can alleviate the shortage of supply and demand for wild rocks and play a role in stabilizing the stock price.

If the issue is broken after listing (the issue price is higher than the market price), then the underwriter will give up exercising, but in the secondary market at a ****** lower than the IPO, and then return the IPO ** to the issuing company, so as to earn the difference between the issue price and the market price, this artificial buy order can play a role in pulling up the stock price.

The "greenshoe mechanism", also known as the greenshoe option (greenshoeoptionorover-allotmentoption), refers to Article 48 of the Administrative Measures for the Issuance and Underwriting of Radical Groups promulgated by the China Securities Regulatory Commission in 2006, which stipulates that "if the number of shares in the initial public offering is more than 400 million, the issuer and its lead underwriter may adopt the over-allotment option in the issuance plan". The "over-allotment option" is commonly known as the greenshoe mechanism.

This mechanism can stabilize the stock price trend after the listing of ** shares and prevent the stock price from fluctuating.

The "Greenshoe Mechanism" was named after Greenshoe ManufacturingCo, which was first used in its initial public offering (IPO) in 1963. Over the next 50 years, this mechanism was used frequently to reduce some of the underwriters' exposure to the first day of trading.

Today, the mechanism is an integral part of most IPOs. Although the original green shoe manufacturing company has become today's Striderite company in Lexington, Massachusetts, the "green shoe mechanism" has long been known for its lead. Alibaba Group used this mechanism in its initial public offering in September 2014, making it the world's largest IPO ever.

How to use the greenshoe mechanic:

1. In the case of permitted short selling, if the over-allotment is not approved by the issuer, it is called "barefoot shoes" (bareshoe) Once the **post-listing stock price**, the underwriter must repurchase its over-allotment shares at ** higher than the issue price, thereby suffering economic losses. Slide up.

2. The exercise of the over-allotment right can be more funds for the listed company, and for the underwriter, it can obtain more underwriting fees in proportion, which is conducive to the successful issuance of new shares and protects the interests of investors to a certain extent. It is therefore a win-win arrangement.

3. The over-allotment will be placed to investors who have a close relationship with the underwriting group, because the allotment is consistent with the issue price and lower than the market price, investors are profitable, and the lead underwriter can also take advantage of this to further consolidate the relationship with the consortium.

The "green shoe mechanism", also known as the green shoe stock index, refers to Article 48 of the Regulations on the Administration of Issuance and Underwriting issued by the China Securities Regulatory Commission in 2006: "If the total number of initial public offerings exceeds 400 million, foreign investors and joint lead underwriters can also use them in the offering plan to over-allotment rights." ”。

Among them, the "overweight stock index**" is commonly known as the green shoe mechanism. Such a system can stabilize the trend of small-cap stocks after the sale and avoid fluctuations and declines.

In 1963, the British name of the Boston Green Shoe Manufacturing Company was first used as "green shoe" in an IPO, and it was the most comprehensive generic name for drugs in the over-allotment rights stock index.

The green shoe mechanism is mainly used in the phenomenon of poor sales market sentiment and unoptimistic or difficult to sell conclusions. Improve investors' confidence in participating in the over-the-counter market subscription, and complete the orderly promotion of the over-the-counter market to the secondary market. The "green shoe" can adjust the amount of financing according to market conditions and balance market supply and demand.

Hello, the greenshoe mechanism is a right granted by the issuer to the underwriter under the underwriting agreement, and the underwriter who obtains this right can oversell no more than 15% of the size of the offering according to the same **. This system was named in 1963 when the American greenshoe company announced its IPO. To put it simply, this mechanism is to delay ****** or keep **** at a price not lower than the issue price.

From the perspective of the entire mechanism, the general implementation time is 30 natural days after listing, that is to say, after the listing of the Postal Savings Bank on December 10, 2019, the greenshoe mechanism will become invalid on January 9, 2020. Specifically, during the post-listing stabilization period, if the secondary market is higher than the issue price, the underwriter may require the issuer to issue a corresponding amount of additional shares; If the performance of the secondary market is weak, the underwriter will use the funds raised from the over-allotment to purchase the corresponding amount from the secondary market and reduce the number of shares circulating in the secondary market.

So where did the money for this green shoe mechanism disc come from?

In fact, this money generally comes from 15% of the additional placement, that is, the money borrowed in advance from the listed company by the issuing broker. In the green shoe mechanism, some people buy a normal IPO, and some buy is the over-allotment under the green mechanism, so the brokerage takes the funds from the over-allotment ** to the secondary market for execution.

With that, we can understand how the greenshoe mechanic works. When the **** is lower than the issue price, the brokerage will take the money to buy **, and then return the ** to the investors who participate in the green shoe mechanism, when the **** is higher than the issue price, the brokerage is to give 15% of the additional issuance of the listed company to the investors who participate in the green shoe mechanism.

To put it simply, in this link, it is actually a circular relationship as shown in the figure above, but the only difference is that the number of the final issuance of the two is different, **** is lower than the issue price in 30 trading days, then the final listed company can only issue 10,000 shares, if the **** is higher than the issue price within 30 trading days, then the final listed company can issue a total of 11,500 shares.

The "green shoe mechanism", also known as green shoe option or over-allotment option, refers to Article 48 of the Administrative Measures for the Issuance and Underwriting promulgated by the China Securities Regulatory Commission in 2006, which stipulates that "if the number of shares in the initial public offering is more than 400 million, the issuer and its lead underwriter may use it in the issuance plan to exceed the allotment option".

Among them, "overweight options" are commonly known as the greenshoe mechanism. This mechanism can stabilize the stock price trend after the listing of ** shares and prevent stock price fluctuations and **. ICBC adopted the "greenshoe mechanism" in its IPO in 2006.

In 1963, the American name Boston Greenshoe Manufacturing Company first used "greenshoe" in an IPO, which is the generic name for the over-allotment option system.

The greenshoe mechanism is mainly used in situations where the market sentiment is not good, and the issuance results are not optimistic or unavoidable. The purpose is to prevent the stock price from falling to or below the issue price after the issuance of new shares, enhance investors' confidence in participating in the primary market subscription, and achieve a smooth transition from the primary market to the secondary market. The use of "green shoes" can adjust the scale of financing according to market conditions and balance supply and demand.