Recently we referred to a 15% over-allotment option (aka Greenshoe) for IPO underwriters. What is the maximum over-allotment odds (OAO) allowed and how does that figure receive set?
The 15% maximum over-allotment option is the standard set by the National Association of Securities Dealers (NASD). The Green Shoe Option derives its term from the first offering containing an over-allotment option underwritten by Paine, Weber, Jackson & Curtis for the Green Shoe Manufacturing Company (later renamed Stride-Rite Corporation) within October, 1960. The original Green Shoe Company over-allotment leeway was equal to 10%; however, underwriters like greased lightning discovered the value of have a contingent short position in an IPO. In recent years, enormously few deals are done short an over-allotment option.
