Definition
Price Stabilisation
Price stabilisation is the post-listing process where a designated agent buys shares to prevent an IPO's price from falling sharply below the issue price.
Under SEBI's green shoe framework, a stabilising agent (usually the lead merchant banker) can intervene for up to 30 days after listing. Using proceeds from over-allotted shares, the agent buys stock from the market if the price dips below the offer price, then returns those shares to the promoter who lent them.
Stabilisation is meant to protect retail investors from immediate post-listing crashes and is not a guarantee of returns. It can only act within the limits of the over-allotment and the stabilisation period.
Related terms
- Green Shoe OptionA green shoe option lets an IPO issuer sell more shares than originally planned — up to 15% extra — to stabilise the price after listing.
- Over-AllotmentOver-allotment is the allotment of more shares than the base IPO size, exercised through the green shoe option to support the post-listing price.
- Stabilising AgentA stabilising agent is the entity, usually the lead merchant banker, responsible for operating the green shoe price-stabilisation mechanism after an IPO lists.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.