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Underwriting |
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UnderwritingA bank or other financial institution's guarantee to a company that it will buy a certain number of shares in a company's new issue or rights issue, should the issue not be fully subscribed by other investors.From the company's point of view, having its new issue underwritten is a form of insurance. It means that if it has priced an issue too high and the market shuns it, the company can still be sure that it will get money from the new issue.Of course, security comes at a price. Underwriters charge a fee for the back-up they provide. If the new issue is very popular, it will pocket that fee and make a handsome profit. Occasionally, they get badly burned. New issues underwritten immediately before the 1987 stock market crash lost a lot of money.Sometimes companies do a rights issue at a deep discount to reduce the underwriting fees.UnderwritingActing as the underwriter in the issue of new securities for a firm.Underwriting Similar MatchesFirm commitment underwritingFirm commitment underwritingAn underwriting in which an investment banking firm commits to buy and sell an entire issue of stock and assumes all financial responsibility for any unsold shares. Negotiated underwritingNegotiated underwritingA securities offering process in which the purchase price paid to the issuer and the public offering price are determined by negotiation rather than through competitive bidding. Underwriting incomeUnderwriting incomeFor an insurance company, the difference between the premiums earned and the costs of settling claims. Underwriting spreadUnderwriting spreadThe income that is generated by the underwriting syndicate and the selling group, which is essentially the difference between the amount paid to the issuer of securities in a primary distribution and the public offering price. Underwriting feeUnderwriting feeThe portion of the gross underwriting spread that compensates the securities firms that underwrite a public offering for their services. Further SuggestionsUnderwriting CommissionAll or none underwriting Underwriting agreement Underwriting syndicate |
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