Biotech Values

[biomaven0]

In theory the way this works is the brokers sell more shares in the offering than the company issues. So if the offering is for 1 million shares, the brokers actually sell say 1.10 million shares. They are thus short 100,000 shares, and so can support the price by closing out their short and buying back all or part of the 100k shares in the days after the offering.

If they don't need to support the price and the stock rises above the issuing price, then they close out their short instead by exercising the option.

There is a specific exemption from the market manipulation rules to allow this activity. It is particularly important in an IPO where nobody really knows what the correct price is.