Refreshing the Shoe

To the extent that an issuer is already a reporting company and the issuer’s stock meets the Regulation M average daily trading volume (ADTV) and public float tests, the underwriters do not have to limit themselves to exercising the traditional 15% option for overallotments. The underwriters can exercise the option for an amount in excess of their short position. The managing underwriter can purchase shares for the syndicate account without applying them against the syndicate short position and then resell those shares.