What are greenshoe option and safety net?
Greenshoe is an option that allows the underwriting syndicate of an IPO to sell additional shares to public if the demand is high. The name comes from the fact that Green Shoe Company was the first to issue this type of option. A safety net means investors who subscribe to the IPO of a company can sell those shares to the entity offering safety net at the IPO price. Safety net is actually a put option given to the investors, but not by the company issuing the shares. A put option gives the right but not the obligation to the investors to sell the stock to the entity offering the option at a particular price before a certain period. Any safety net scheme or buy-back arrangements of the shares proposed in any public issue shall be finalised by the issuer company with the lead merchant banker in advance and should be disclosed in the prospectus.
