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

See all articles by James F. Cotter

James F. Cotter

Wake Forest University School of Business

Randall S. Thomas

Vanderbilt University - Owen Graduate School of Management; Vanderbilt University - Law School

Multiple version iconThere are 2 versions of this paper

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

Cotter, James F. and Thomas, Randall S. and Thomas, Randall S., Firm Commitment Underwriting Risk and the Over-Allotment Option: Do We Need Further Legal Regulation? (1998). Securities Regulation Law Journal, Vol. 26, p. 245, Fall 1998 , Available at SSRN: https://ssrn.com/abstract=1727635

James F. Cotter (Contact Author)

Wake Forest University School of Business ( email )

Farrell Hall 384
P.O. Box 7659
Winston-Salem, NC 27109-7659
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336-758-7220 (Phone)

Randall S. Thomas

Vanderbilt University - Owen Graduate School of Management

401 21st Avenue South
Nashville, TN 37203
United States

Vanderbilt University - Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States

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