An Overallotment is an option commonly available to underwriters that allows the sale of additional shares beyond those initially planned in an initial public offering or secondary/follow-on offering. This type of option provides flexibility for the issuer and can help ensure that a successful IPO or follow-on offering is completed, even if demand exceeds supply. The overallotment option typically allows up to 15% more shares than originally planned, with the ability to exercise this right within 30 days after issuance.The primary benefit of having such an overallotment option available is that it gives companies greater control over their offerings by allowing them to adjust pricing and size based on market conditions at the time they are selling securities. It also helps reduce risk by providing a backstop in case there’s too much demand for what was initially offered—the company can issue more without having to go through another round of paperwork and approvals from regulators before being able do so. Finally, it provides underwriters with some protection against losses due potential price declines as well as volatility associated with IPOs or other types of equity offerings since they have accesses additional security should prices fall below expectations during trading sessions following issuance date .Overall, while not always necessary when issuing securities , having an overallotment provision in place does give issuers added flexibility which could prove beneficial down the line depending on how markets react once new issues become tradable assets . As such , its important for both issuers and investors alike understand exactly how these options work prior engaging any sort activity related thereto.
