IPO University

A typical underwriter agreement allows the underwriters to buy up to 15% in additional shares at the offering price for a period of several weeks after the offering. This option, also called the overallotment, is available if the deal is oversubscribed, and is always exercised if the IPO had strong positive trading. The ability to buy additional shares also allows underwriters to manage aftermarket trading. The term comes from the Green Shoe company, which was the first to have this option.