What is Green Shoe Option in IPO?

Green Shoe Option means an option of allotting equity shares in excess of the equity shares offered in the public issue as a post-listing price stabilizing mechanism in accordance with the provisions of SEBI (ICDR) Regulations, 2018. There is a provision in an Initial Public Offering (IPO) underwriting agreement that grants the underwriter the right to sell more shares than originally planned, if the demand for a security issued proves higher than expected. It is also called an over-allotment option. According to SEBI, Green Shoe Option is a price stabilizing mechanism in which shares are issued more than the issue size, i.e. a maximum of 15%. It is a mechanism to stabilize the issue price post listing.