OVERALLOTMENT Meaning and
Definition
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Overallotment refers to the practice in financial markets where underwriters of a new security issue, such as stocks or bonds, are allowed to sell more than the planned or allotted amount of securities issued by the issuing company. Also known as an "oversubscription option" or "green shoe option," overallotment is a contractual arrangement, typically between the issuing company and the underwriters, that allows the underwriters to exceed the initially allocated number of securities to be sold to investors.
The overallotment option gives underwriters the flexibility to respond to unexpected changes in demand for the securities being offered. If the demand for the securities is higher than expected, the overallotment provision allows the underwriters to sell additional securities at the offering price, generating additional revenue for the issuing company. The option acts as a safety valve that helps manage the supply and demand of securities and stabilize the market price.
Overallotment can also serve as a risk management tool for underwriters. If demand for the securities is lower than anticipated, the overallotment option allows the underwriters to reduce their exposure by purchasing securities in the open market to cover the excess allotted shares, minimizing their losses.
Overallotment usually lasts for a fixed period after the initial offering, giving the underwriters enough time to gauge the level of demand and decide whether to utilize the option. It is a common practice in initial public offerings (IPOs) and public offerings of securities.
Common Misspellings for OVERALLOTMENT
- iverallotment
- kverallotment
- lverallotment
- pverallotment
- 0verallotment
- 9verallotment
- ocerallotment
- oberallotment
- ogerallotment
- oferallotment
- ovwrallotment
- ovsrallotment
- ovdrallotment
- ovrrallotment
- ov4rallotment
- ov3rallotment
- oveeallotment
- ovedallotment
- ovefallotment
- ovetallotment
Etymology of OVERALLOTMENT
The word "overallotment" is a blend of the words "over" and "allotment".
The term "allotment" originated from the Middle English word "alotement" in the 15th century, which is derived from the Old French word "allotir", meaning "to divide by lots". This further traces back to the Medieval Latin word "allotementum", which has the same meaning.
The prefix "over-" in "overallotment" intensifies or enhances the meaning of the word "allotment". It suggests that the allocation or distribution exceeds what was originally planned, allowing for more shares or units of something to be allotted or granted.
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