What are green shoes?

Remarks: the picture and text have nothing to do with it.

1: green shoes: also known as "over-allotment option" (Over-allotment Option), which originated from the American Green Shoe Company's use of IPO in 1963, specifically refers to the securities companies in underwriting IPO at the same time, a certain underwriter will act as a stable market dealer, that is, Stabilization Agent (stable market broker), to maintain the stability of the stock price after listing. After a company goes public, stock prices fluctuate for a variety of reasons, such as emergencies, irrational retail selling, hedge fund arbitrage and downward inertia caused by successive falls. In fact, the "market protection" behavior of market stabilizers is suspected of manipulating the market, but mainstream exchanges, including the Hong Kong Stock Exchange and the New York Stock Exchange, all adopt a tacit attitude of buying when falling, exercising power when rising, preventing ups and downs, and stabilizing stock prices. generally speaking, those who have green shoes are more at ease, and those who have a backing bottom, those without green shoes or those who do not have the right to exercise should be careful.

2: green shoes are a right granted to the underwriter by the issuer according to the underwriting agreement, and it is a flexible mechanism arrangement. The underwriter who has obtained this right may oversell shares not exceeding 15% of the number of shares issued this time at the same price (hereinafter referred to as "green shoe size"). The final over-allotment will be determined after the end of the stable period of the future market (usually 30 natural days from the date of listing) according to market conditions.

3: specifically, during the stable period after the stock listing, if the secondary market price of the stock is higher than the issue price, the underwriter can use green shoes and require the issuer to issue a corresponding number of shares, thus increasing the supply of the secondary market. If the performance of the stock secondary market is weak, the underwriter will use the funds raised by the over-allotment of shares to buy a corresponding number of shares from the secondary market, reducing the number of shares in circulation in the secondary market to support stock price performance. From this point of view, in conjunction with the appropriate trading strategy, the exercise of the green shoe mechanism can slow down the decline of the stock price to a certain extent or maintain the stock price at a level not lower than the issue price.

Source: 9F Inc. Securities

Second, the premise that the over-allotment option is effective?

First of all, two words should be mentioned here, one is excess, and the other is the right of choice, first one and then two.

1: excess, the premise that the green shoe mechanism is effective is that the international allotment is oversubscribed. If the international allotment is not oversubscribed, then the oversubscription right has been invalidated.

2: option: when the international allotment is oversubscribed, the underwriter has the right to choose whether the over-allotment right takes effect or not. If the over-allotment right takes effect, it can exceed 15% of the underwriting amount, or less than 15%. You can control this by yourself, and you can enter on the same day or in the next few days.

Third, how is the green shoe mechanism exercised?

1: after obtaining the authorization of the issuer, the underwriter will overallocate the proportion of shares agreed by the Green shoes mechanism in the IPO, that is, the number of shares issued can be the upper limit after the overallocation (generally not more than 115% of the initial offering size). Typically, the additional placement is stock that the underwriter "borrows" from strategic investors who have reached a deferred delivery agreement with the issuer, and these shares are sold to investors during the IPO. It should be noted that in the process of over-allotment, the excess shares are "borrowed" and are not actually overpurchased from the issuer. In essence, it is the underwriter who "borrows" a sum of money to buy shares from the issuer or the market during the stable period of the future.

Specifically, the implementation of the green shoe mechanism roughly includes the following three situations:

1. Non-exercise of green shoes: if the stock price of the company breaks after listing, and the number of shares bought by the underwriter from the secondary market is equal to the size of green shoes, then the green shoes are not executed and all the shares bought by the underwriters will be returned to the strategic investors who had previously borrowed shares. The size of the issue is 100% of the size before the green shoes.

two。 Part of the exercise of green shoes: if there is a break after listing, the underwriter uses the funds raised by the previously over-issued shares for stable operation in the future, and the number of stocks bought from the secondary market is less than the scale of green shoes, then, the green shoes stocks bought by the underwriters during the stable period have not been fully implemented. The size of the issue is 100% of that of green shoes. 115%.

3. Full exercise of green shoes: in the process of issuance, the underwriter completes the over-allotment option by "borrowing" shares from strategic investors and "borrowing" this part of the shares. If the secondary market price of the issuer's stock has been higher than the issue price after listing, or although there is a break, but the underwriter does not use the green shoes to buy the shares, then the green shoes are fully exercised. The size of the issue is 115% of the pre-implementation size of green shoes. For example, when BABA recently listed on the Hong Kong stock exchange, the size of the green shoes was 75 million shares (15 per cent of the offering size) and the full exercise was announced on the fifth trading day after the listing.

From the perspective of implementation effect, the green shoe mechanism gives some space to issuers and underwriters. It can use the funds of the over-allotment part to maintain the stock price through the flexible implementation of the trading strategy in the secondary market, which is conducive to the smooth transition of the stock price from the primary market to the secondary market. To a certain extent, reduce the market risk faced by investors in the short term; at the same time, the process of underwriters buying stocks in the secondary market also increases the liquidity of the stock to a certain extent, activating the secondary market trading.

Fourth, what impact will the implementation of the green shoe mechanism have on issuers and investors?

The green shoe mechanism is a market-oriented mechanism arrangement that can safeguard the interests of both issuers and investors to a certain extent. When the stock price falls, the green shoe mechanism can play a role in "protecting" the stock price to protect the rights and interests of investors; when the stock price rises, issuers can expand the size of the offering to gain more efficient support from the capital market.

Specifically, when the stock shows a weak performance in the future, that is, when the stock price is lower than the issue price, the green shoe mechanism can support the stock price and reduce the stock price fluctuation through the stable operation of the stock price.

When the stock has a strong performance in the future, that is, when the stock price is higher than the issue price, the green shoe mechanism can make the issuer choose to implement the over-allotment option, expand the financing scale and improve the financing efficiency of the issuer.

Five: what do you think of green shoes and whether the executor of green shoes exercises power?

1: first of all, we should often read the prospectus, it is very simple, the first and second pages of the prospectus are very clear! If it is not clear, as also introduced in the prospectus, the joint bookkeeper is the price stabilizer of green shoes, including the number of over-allotted shares, which can be viewed in great detail. For example, the dark market of Donkey Technology Technology (01745:HK) at the end of January is large, and the first day is also broken, but the green shoes still enter the market after noon, and the executor is CCB International, which is still more reliable. Chinese securities firms are strong. I remember that Sony Real Estate was also the stable executor of CCB International, and it was reliable that it did not break on the first day.

2: green shoe executors usually appear in buying brokers the next day. I mean, there is a high probability. As a person with stable prices, everyone retreats me to walk alone, and the quantity and name can be found. I need to be reminded that the implementation of green shoes is only after the first day, and there are no green shoes on the dark disk.