Definition of Green Shoe

Technically known as an over-allotment option, a green shoe is a part of underwriting agreement, through which the issuer can distribute additional shares. The additional amount is typically 15%.

The Green Shoe Manufacturing Company was the first one to use this concept, and this is where the name comes from!

Points to remember:

• A Green Shoe option can be used only if the public demand for shares increases more than expected.
• It is the only way that is permitted by SEBI to stabilize the prices after the offering price is decided, by the underwriter.