Monday, March 26,
2018 05.02PM / Proshare Research / NSE
Last week, after the publication of the ‘Proposes Rules
for Price Stabilization of Securities’, not a few member of the investment
community raised the question: What is the NSE doing here?
We sought to know and reached out to the Nigerian Stock Exchange
rules unit, who were quite professional in their engagement on the matter.
NSE explains it thus further that ‘the stabilization of securities creates a
regulatory framework for the buying of security for the limited purpose of
preventing or retarding a decline in its open market price in order to
facilitate its distribution to the public.’
to investopedia, a 'Greenshoe Option' in security issues, is an
over-allotment option. In the context of an initial public offering (IPO), it
is a provision in an underwriting agreement that grants the underwriter the
right to sell investors more shares than originally planned by the issuer if
the demand for a security issue proves higher than expected.
Here, we publish a
communication we hope will help shed more light on the intent and the process
of the proposed rule.
PRICE STABILIZATION RULES (GREENSHOE OPTION)
green shoe, or over-allotment, option is a permitted form of market
stabilization activity to manage post-transaction volatility in the immediate
aftermath of an equity transaction (when trading and free float turnover is
options are a common feature of international equity capital markets, offering
transaction investors significant additional comfort around stable aftermarket
option grants an Issuing House the right to borrow shares equivalent to up-to
Fifteen per cent (15%) of a transaction base deal size, from an identified
holder of such shares or the Issuer, in order to facilitate an up-to Fifteen
per cent (15%) over-allocation of the base deal size on The Nigerian Stock
Exchange (“The NSE”) – creating an effective short position (the greenshoe
1. The short position would be
closed through the purchase of shares through stabilization activity or
the partial or full exercise of the option (following which the net
proceeds of the exercise and/or shares purchased in stabilization would be
returned to the lending holder of shares or the Issuer, as appropriate.
sole bank/Issuing House from the lead banking transaction syndicate is
appointed to act as stabilization manager:
2. The stabilization manager
undertakes and discloses stabilization activity undertaken.
3. The appointed stabilization
trader within the bank is ring-fenced and wholly independent of normal
course day-to-day trading in the stock that is subject to the green shoe
B. Typical features
of a Greenshoe Option include:
• Maximum green shoe option equal to Fifteen per
cent (15%) of equity transaction size.
• Option can consist of either secondary (most
common) or primary (less common) shares.
• Price stabilization can only occur at the IPO
price or below.
• Shares bought back through stabilization activity
cannot be resold to the market.
• Stabilization activity limited to a Thirty (30)
calendar day period following the transaction close.
• Stabilization activity can continue until the
earliest of -
1. the end of the Thirty (30) day
2. the exhaustion of the option
(Fifteen per cent (15%) bought back in the market), or
3) the exercise of the
C. Key Objectives of a Greenshoe
• Increase investor confidence regarding the
aftermarket liquidity and performance – a common feature of international
• To allow for purchase of secondary shares to
support falling share price.
• To allow for upsizing of a transaction by up to
Fifteen per cent (15%), if exercised.
• Strategy to counteract the
heightened post-transaction volatility in the immediate transaction
D. Process for the Greenshoe
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