Greenshoe option

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Greenshoe option

 Option that allows the underwriter for a new issue to increase the size of the issue because of high demand for the shares.

Greenshoe Option

A provision in some underwriting contracts allowing the underwriter to sell more shares to investors than were originally agreed. In an underwriting agreement, the underwriter agrees with the issuer of a security to place a certain amount with investors. If demand for the security exceeds the underwriter's supply, the greenshoe option allows the underwriter to avoid a sudden jump in price by increasing supply. Normally, the greenshoe option allows the underwriter to increase supply up to 15%. It is important to note that not all underwriting contracts have greenshoe options, especially in situations in which the issue is for a limited project for which the issuer only needs a certain amount of capital. It is also called an overallotment option.
References in periodicals archive ?
BMV: SANMEX; NYSE: BSMX)("Santander Mexico") announced today that the international and local underwriters of the previously announced public offering have exercised their respective greenshoe options to purchase additional Series B shares and American Depositary Shares ("ADSs") from the selling shareholders, Banco Santander, S.
Following the exercise of the greenshoe options, Santander Mexico's global public offering amounted to a total of 1,689,543,408 Series B shares sold, including 319,977,408 Series B shares in the local offering and 1,369,566,000 Series B shares in the form of 39,750,000 Series B shares and 265,963,200 ADSs in the international offering.
This is mostly likely due to the large number of greenshoe options exercised and the scarcity of the issues.