GREEN SHOE OPTION

CA.Shaleen Srivastava (CA , CWA*, Bcom(H)) (2004 Points)

15 January 2008  

 




SHALEEN SRIVASTAVA

Regn. No: NRO 0164927

CA-FINAL


SEBI GUIDELINES RELATED TO GREEN SHOE OPTION


GREEN SHOE OPTION denotes an option of allocation of shares, in excess of shares included in the public issue. W.e.f 28.05.07, the concept of Green Shoe option has been extended to all public issue in accordance with the provision of chapter VIII A of SEBI Guidelines. SEBI introduced this option with a view to boost investor’s confidence by arresting the speculative force, which work immediately after listing and thus result in short term votality in post listing price. It ensures price stability.


There are some guidelines related to Green Shoe option by Security & Exchange Board of India.


  • An issuer company making a public offer of equity shares can avail of green shoe option for

--Stabilizing the post-listing price of its shares.

--Possibility of allotment for the shares to the stabilizing agent at the end of stabilizing period


  • A company shall appoint one of the merchant bankers from amongst the issue management team, as a stabilizing agent who will be responsible for the price stabilization process.


  • The stabilizing agent (SA) shall enter into an agreement with the promoters or pre-issue shareholders who will be lend their shares specifying the max. no of shares shall not be in excess of 15% of total issue size.


  • The details of the agreement shall be disclosed in the draft prospectus, draft red herring prospectus, red herring prospectus and final prospectus.


  • Lead Merchant bankers by constitutions with stabilizing agent, shall determine the amount of shares to overalloted with public issue.


  • The draft prospectus, draft red herring prospectus, red herring prospectus and final prospectus shall contain following additional disclosures:-


--Name of Stability agent.

--The max. no of shares proposed to be overalloted by company.

--The period for which the company propose to avail of the stabilizing mechanism.

--The max. increase in capital of company and the shareholding pattern, post issue, is required to allot for the shares to the extend of over allotment in the issue.

--The max amount of fund to be received by company in case of further allotment and the use of these funds in final document to be filled with ROC.


  • In the case of initial public offer by the unlisted company, the promoter and the pre issue share holders or incase of listed company having shareholding more than 5 % shares , may lend the shares subject to provision of SEBI. The Stabilizing Agent shall borrow shares from the promoters or prs issue share holding to extend of proposed over allotment.

  • The allocation of these shares shall be on pro rata basis.


  • The stabilization mechanism shall be available for the period, which shall not exceed 30 days from the date of trading permission, was given by exchange(s).



  • The SA shall open a special account with the bank to be called SPECIAL ACCOUNT for GSO proceeds of ……..Company. For the money received from applicants against over-allotments in GSO shall be kept in GSO bank A/c for the purpose of buying shares from market during stabilization period, credited to the GSO Demat A/c(shares brought from markets by SA)


  • The share brought from market and lying in GSO Demat A/c shall be return to promoter immediately in any case not later than 2 working days after the close of the stabilization period.


  • The Prime-responsibility of SA shall be stabilizing post-listing price of share. The SA shall determine the timing of buying the shares, quantity to be brought and the prices at which the shares are to be brought.


  • On the expiry of stabilization period, in case of SA does not buy shares, the issuer company shall allot shares to the extend of shortfalls in dematerialization form to GSO Demat A/c with in 5 days of closer of Stabilization period.


  • The shares returned to promoter shall be subject to remaining lock in period as applicable to promoters holding.


  • The SA shall remit an amount equal to issuer company from GSO Bank A/c. The amount left in this account shall be transferred to investor’s protection fund.


  • The SA shall submit a report to stock exchange on daily basis during the stabilization period. The SA shall also submit a final report to SEBI in specified format. The SA and the company shall sign this report


  • The SA shall maintain the register in respect of each issue and must retained for the period at least 3 years from the date of end of stabilization period. The register contains

    1. Each transaction effective.

    2. Details of Promoters from whom the shares are to be brought.

    3. Details of allotments.