I notice from the new RHM flotation that the share price may be subject to “stabilisation”. What does this mean?
In any public offer of shares, there is likely to be a sudden increase in supply of shares to the market for one reason or another, which will put downward pressure on the shares, causing in some cases a large downward movement in the share price. The idea of stabilisation is to prevent this happening, whereby the lead manager of the offer may buy shares in the market in order to prop up the share price – this can only be done, however, when the market price is at or below the offer price. This is an accepted form of share manipulation, since it ensures an orderly market in the shares, which can be volatile when initially traded. Another benefit is that it increases confidence that the market can support new issues, and therefore more companies are likely to consider this route. Similar practices take place in other major markets.
