capital market terms

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can anyone tell me what the terms given below are about??im able to understand the concept given in ma text..

1) green shoe option 

2)book building

Replies (3)

A greenshoe is a clause contained in the underwriting agreement of an IPO that allows underwriter to buy up to an additional 15% of company shares at the offering price. The investment banks and brokerage agencies (the underwriters) that take part in the greenshoe process have the ability to exercise this option if public demand for the shares exceeds expectations and the stock trades above the offering price.

 

Book Building is the process of issue of shares in which demand and price of share elicited. investor writes the amount and quantity of the share on which he like to buy. price quoted in between cap and floor price.  

Green Shoe Option

A provision contained in an underwriting agreement that gives the underwriter the right to sell investors more shares than originally planned by the issuer. This would normally be done if the demand for a security issue proves higher than expected. Legally referred to as an over-allotment option.

A greenshoe option can provide additional price stability to a security issue because the underwriter has the ability to increase supply and smooth out price fluctuations if demand surges.

For example, if a company decides to publicly sell 1 million shares, the underwriters (or "stabilizers") can exercise their greenshoe option and sell 1.15 million shares. When the shares are priced and can be publicly traded, the underwriters can buy back 15% of the shares. This enables underwriters to stabilize fluctuating share prices by increasing or decreasing the supply of shares according to initial public demand. For more detials check this link

https://www.investopedia.com/articles/optioninvestor/08/greenshoe-option-ipo.asp

 

Book building

It refers to the process of generating, capturing, and recording investor demand for shares during an IPO (or other securities during their issuance process) in order to support efficient price discovery. Usually, the issuer appoints a major investment bank to act as a major securities underwriter or bookrunner.

Now adays, generally all the IPOPs are amde by book building process. For more inforrmation, check the following link >

https://en.wikipedia.org/wiki/Book_building

https://www.bseindia.com/bookbuilding/about.asp

 

arey yaar..thanks..u guys made it so dam clear..hurrray!!


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