Senior staff writer
Greenshoes are misunderstood. They are often seen as the
hallmark of an excellent equity issue, but that's not what they
are designed for. Rather they are an insurance policy against
stabilisation purchases – that can be profitable for
Underwriters are under an obligation to stabilise share
prices after an offering. But there is a grey area when banks
hold large amounts of shares due to that stabilisation and can
sell them for a hefty profit. Does it count as market abuse in
Europe? The Committee of European Securities Regulators (Cesr)
published an opinion earlier in the year, but banks felt it was
not detailed enough and they are still nervous about the
boundaries of safe harbours. Traders and compliance departments
are arguing over what is and isn't market abuse.
"The thing is, it is complex and most lawyers don't
understand it very well. Neither do...