La clause Green Shoe

The Green Shoe Option is a mechanism used in Initial Public Offerings or IPOs to stabilize share prices and manage demand for shares.

If the stock's demand is higher than expected and its price rises quickly, the underwriters can exercise this option to release additional shares. 

This increase in supply helps stabilize the stock's price by preventing excessive and rapid price increases.

Conversely, if the stock price falls after the IPO, underwriters can buy shares in the open market at lower prices, helping stabilize the stock price.

For example, consider Pixel Corporation, which plans to go public with one million shares. 

If it includes a fifteen percent Green Shoe Option, the underwriters can issue up to one hundred fifty thousand additional shares. 

If the stock price rises quickly after the IPO due to high demand, the underwriters can use the Green Shoe Option to sell the extra shares. This helps prevent the stock price from climbing too fast, thus maintaining a steadier market price.