Question

    What does the green shoe option provide companies the ability to do during the 30-day stabilisation period after listing?

    A Sell additional shares above the issued quantity. Correct Answer Incorrect Answer
    B Buy back shares from existing shareholders. Correct Answer Incorrect Answer
    C Intervene to stabilize share prices through market purchases. Correct Answer Incorrect Answer
    D Issue convertible bonds to raise capital. Correct Answer Incorrect Answer
    E Split shares to increase market liquidity. Correct Answer Incorrect Answer

    Solution

    The green shoe option, also known as an over-allotment option, allows companies to intervene in the market during the 30-day stabilisation period following their listing. This intervention involves purchasing equity shares from the market using a company-appointed agent if the share prices fall below the issue price. This mechanism is used to stabilize the share price and ensure a smoother transition for the company's shares in the market after their initial listing.

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