Reverse Greenshoe Option Law and Legal Definition

Reverse greenshoe option is a provision contained in a public offering underwriting agreement that gives the underwriter the right to sell the issuer shares at a later date. The reverse greenshoe option is used to support the price of a share in the event that after the Initial Public Offering the demand for the stock falls. When the demand falls the underwriter buys shares in the open market and then sells them back to the issuer, stabilizing the share price.