Definition
Stabilising Agent
A stabilising agent is the entity, usually the lead merchant banker, responsible for operating the green shoe price-stabilisation mechanism after an IPO lists.
The stabilising agent enters into agreements with the company and the promoter who lends shares for over-allotment. It opens a special bank account and a special demat account to hold the green-shoe shares and the funds, and conducts open-market purchases if the price falls below the issue price.
Under SEBI rules the agent must report its stabilisation activity to the stock exchanges. At the end of the stabilisation period, it squares off the position and the promoter is either repaid in shares or money.
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.
- Price StabilisationPrice 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.
- Merchant Banker / BRLMA merchant banker, acting as Book Running Lead Manager (BRLM), is the SEBI-registered intermediary that manages an IPO from filing to listing.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.