Green shoe Option (GSO).

This is a post listing price stabilizing mechanism, by which the company intends to ensure that the shares price on the Stock exchanges does not fall below the issue price. The term Green shoe option derived its name from the company in US which exercised this mechanism for the first time. The Securities and Exchange Board of India (SEBI) guidelines permit exercise of the green shoe option by a company making a public issue. A pre-issue contract is required to be entered into for this purpose with an existing shareholder often one of the promoters. The guide line requires the promoter to lend his shares to be used for price stabilisation to be carried out by a stabilising agent on behalf of the company. The stabilizing agent can be one of the lead book runners and the stabilization period can be for a period of maximum period of 30 days from the date of allotment of shares. The company then goes on to make allotment, including over allotment, to the extent it has exercised the green shoe option, which term incidentally has its origin in the name of a company that for the first time exercised such an option in the US. The proceeds of the public issue to the extent it relates to such over-subscription permitted by the green shoe option is, however, kept in an escrow account to be used in the price stabilisation exercise (explained clearly how these funds are to be used). Green shoe option is to be exercised in an IPO. The SEBI guideline requires the promoters of the company to lend some shares (the maximum upper limit being 15% of the total number of shares being issued through IPO) to the stabilizing agent whose duty is to monitor the post listing price of the companies share in the stock exchange.

How Green shoe option works? The entire process of a green shoe option works on over-allotment of shares. Say, for instance, that a company is planning to issue only 100,000 shares, but in order to utilize the green shoe option, it actually issues 115,000 shares, in which case the over-allotment would be 15,000 shares. However the point that the company does not issue any new shares for the overallotment should be noted. The 15,000 shares used for the over-allotment are actually borrowed from the promoters with whom the stabilizing agent enters into a separate agreement. For the subscribers of a public

issue, it makes no difference whether the company is allotting shares out of the freshly issued 100,000 shares or from the 15,000 shares borrowed from the promoters. Once allotted, a share is just a share for an investor. For the company, however, the situation is totally different. The money received from the overallotment is required to be kept in a separate bank account (which is GSO bank Account) . The main job of the stabilizing agent begins only after trading in the share starts at the stock exchanges. In case the shares are trading at a price lower than the offer price, the stabilizing agent starts buying the shares by using the money lying in the separate bank account. In this manner, by buying the shares when others are selling, the stabilizing agent tries to put the brakes on falling prices. The shares so bought from the market are handed over to the promoters from whom they were borrowed. In case the newly listed shares start trading at a price higher than the offer price, the stabilizing agent does not buy any shares. Then how would he return the shares? At this point, the company by exercising the green shoe option issues new shares to the stabilizing agent, which are in turn handed over to the promoters from whom the shares were borrowed.

Electronic Initial Public Offering Service Summary This service enables investors to subscribe in public offerings by filling subscription forms specified for that purpose available through this service and printing them. The e-IPO service aims to enable the investor to complete public offering procedures with ease and reduce time and effort, as well as reduce mistakes by guarantying the accuracy of the information of investors public and private subscriptions. This service also provides all the required information regarding public subscriptions that are available through this service including the prospectus and its summary in addition to the memorandum and the articles of association of the company offering its shares to public subscription.

Electronic Initial Public Offering (eIPO) - Guidelines for Registered Persons Using the Internet to Collect Applications for Securities in an Initial Public Offering The Securities and Futures Commission (SFC) today released the Guidelines for Registered Persons Using the Internet to Collect Applications for Securities in an Initial Public Offering (Guidelines). The Guidelines are intended to provide guidance to those registered persons who use the Internet to collect applications from their clients or the public for securities in an initial public offering (IPO). In order to promote and facilitate the use of technology in the IPO process in Hong Kong, during the past few months, the SFC has been working closely with the industry to formulate an eIPO model which is suitable for the Hong Kong market. With increasing popularity of online trading, the market needs a new application process which is easy and friendly for investors to use and provides various market participants (e.g. brokers, banks, share registrars etc.) with a more cost-effective means to conduct their business. The new model would encourage competition and innovation among market players and allows investors to have the freedom to choose the eIPO services which meet their needs the best. It is important to point out that, at this stage, the eIPO method is only a supplement to the existing paper-based approach where white forms and yellow forms are used. The SFC will continue to work with the industry to facilitate the adoption and implementation of the eIPO in the marketplace. The proposed multi-channel eIPO model will have the following key features:

Different market participants (e.g. brokers, banks, Hong Kong Securities Clearing Company Limited etc.) will be allowed to offer the eIPO service to their clients or the public. They are referred to as the eIPO service providers.

Each eIPO service provider can set up its own website and use other methods (e.g. by phone, use paper instruction forms etc.) to collect applications from

their clients or the public for securities in an IPO.

Each eIPO service provider will rely on its own business arrangements with clients or the public to effect applicants payments for the subscription (e.g. a bank may rely on its own system to debit applicants accounts; brokers will make necessary arrangements with their clients to ensure that there is sufficient fund for the subscription).

Each eIPO service provider will prepare data files containing all the application information in accordance with the standard data file format specified by the Federation of Share Registrars Limited and submit them either electronically through the SD Net (which is a proprietary network built and maintained by the SFC) to the share registrar or manually through the submission of CD-ROMs to the receiving banks.

Each eIPO service provider will also submit the consolidated application forms together with the subscription money to the receiving banks which, in turn, transfer the consolidated application forms to the share registrar for further processing.

Refund of subscription money and delivery of allotted securities will be made to the eIPO service providers or the applicants.

For an eIPO service provider, there are two areas in its operation which are critical to the offering of the securities application collection services to the clients or the public. The first area concerning the front-end of the operation is about how to properly construct its website and webpages which are used to collect applications in a manner which is consistent with the existing laws and regulations. The SFC 's Guidelines set out the requirements which should be followed by the eIPO service providers, such as the availability of a full copy of the electronic prospectus (including both the Chinese and English language text) on the website; clear specification of the terms and conditions and application procedures governing the relationships between eIPO service providers and their clients or the public regarding the services etc. The second area concerning the back-end of the operation is about the operational

procedures which must be followed by the eIPO service providers when submitting application information to the share registrar and the receiving banks. In this respect, the Federation of Share Registrars Limited (Federation) has prepared its own operational procedures titled Operational Procedures for eIPO Applications Submitted via Banks/Stockbrokers. Copies of the SFC 's Guidelines, the Federation 's Operational Procedures and the Procedure to submit Sample Data to the Federation for Testing Data Conformity are posted on the SFC website at http: // www.hksfc.org.hk.