Firm Commitment Underwriting Risk and the Over-Allotment Option: Do We Need Further Legal Regulation?

Securities Regulation Law Journal, Vol. 26, p. 245, Fall 1998

Posted: 11 Aug 1999

See all articles by James F. Cotter

James F. Cotter

Wake Forest University School of Business

Randall S. Thomas

Vanderbilt University - Owen Graduate School of Management; Vanderbilt University - Law School

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Abstract

This article examines firm-commitment initial public offerings, exploring the ways underwriters use and abuse the over-allotment option to affect legal price stabilization in after-market trading. After illustrating that underwriters always profit when they make full use of the over-allotment option, the authors suggest that the NASD reexamine the size of the over-allotment option and require disclosures concerning the use of the option be included in the prospectus distributed to potential buyers of newly issued securities.

Suggested Citation

Cotter, James F. and Thomas, Randall S. and Thomas, Randall S., Firm Commitment Underwriting Risk and the Over-Allotment Option: Do We Need Further Legal Regulation?. Securities Regulation Law Journal, Vol. 26, p. 245, Fall 1998, Available at SSRN: https://ssrn.com/abstract=171725

James F. Cotter

Wake Forest University School of Business ( email )

Farrell Hall 384
P.O. Box 7659
Winston-Salem, NC 27109-7659
United States
336-758-7220 (Phone)

Randall S. Thomas (Contact Author)

Vanderbilt University - Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States

Vanderbilt University - Owen Graduate School of Management

401 21st Avenue South
Nashville, TN 37203
United States

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