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
25 Pages Posted: 18 Dec 2010
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Firm Commitment Underwriting Risk and the Over-Allotment Option: Do We Need Further Legal Regulation?
Firm Commitment Underwriting Risk and the Over-Allotment Option: Do We Need Further Legal Regulation?
Date Written: 1998
Abstract
This article examines firm-commitment initial public offerings, exploring the ways underwriters use and abuse the over-allotment option to affect legal prices 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.
Keywords: underwriting, risk, allotment, regulation
Suggested Citation: Suggested Citation
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