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A situation in which investors
show so much interest in a new issue
of a security
. Before a new issue, underwriters
canvass potential investors, who may or may not book an order
a portion the new issue. If investors order more shares
than there are shares being issued, the security is said to be oversubscribed. This may affect the price
when the security is actually issued.
1. Or, relating to, or being a new security issue for which there are more requests to purchase securities than are securities available for sale. For example, brokers may take a sufficient number of preliminary orders for a new issue of stock for which there are insufficient shares available to satisfy the demand. Also called overbooked.
2. Of, relating to, or being a buyback or takeover attempt in which more securities are offered than the purchaser has agreed to buy. In such a case the purchaser may decide to buy the additional securities or may buy the agreed-upon number on a pro rata basis.
An initial public offering (IPO) is oversubscribed when investor demand for the shares is greater than the number of shares being issued.
What typically happens is that the share price climbs, sometimes dramatically, as trading begins in the secondary market, though the price may drop back closer to the offering price after a period of active trading.
The group of investment banks, known as a syndicate, that underwrites a hot IPO may have an agreement, known as a green shoe clause, with the issuing company to sell additional shares at the same offering price.