An orderly market agreement (OMA) is a legal agreement between a company and its underwriters that aims to maintain stable market conditions and protect investors during an initial public offering (IPO) or a secondary offering of securities.

The primary purpose of an OMA is to prevent the market from being flooded with too much supply at once, which can cause the price of the securities to plummet, resulting in substantial losses for investors. By implementing an OMA, underwriters can help ensure that supply and demand remain balanced, promoting fair and orderly market conditions.

OMAs typically specify the number of shares that can be sold during a specific period, the minimum price at which shares can be sold, and the conditions under which trading can occur. For example, the agreement may include restrictions on short selling and margin trading, both of which can contribute to market volatility.

Underwriters use OMAs to manage the risks associated with securities offerings by controlling the amount of supply available in the market. By limiting the number of shares that can be sold at any given time, they can help ensure that the demand for the securities remains high and that the offering price remains stable.

For companies, OMAs provide a measure of stability and predictability during the IPO process. By setting clear guidelines for share sales, companies can avoid sudden drops in share prices that can be damaging to their reputation and long-term prospects.

In summary, an orderly market agreement is a valuable tool for maintaining stable market conditions during an IPO or secondary offering of securities. By balancing supply and demand and providing clear guidelines for share sales, OMAs help protect investors and promote fair trading practices. Companies and underwriters alike benefit from the stability and predictability provided by these agreements, making them an essential component of the securities offering process.