What is underwriting of shares

what is underwriting of shares

Underwriter

A company, usually an investment bank. that an issuer hires to place a new issue with investors. The issuer normally hires several underwriters for a single issue, where each is responsible for placing a certain amount of the new issue. The underwriters contact potential investors to gauge interest and sell the issue. Underwriters guarantee the price for a certain number of shares of the new issue. Because of their expertise on placing securities with investors, using underwriters often increases the chance that the placement will be successful. An underwriting firm is also called a house of issue. See also: Bracketing. Oversubscribed. Undersubscribed. Underwriting agreement .

underwriter

An investment banker that acts to guarantee the sale of a new securities issue by purchasing the securities for resale to the public. Also called sponsor. See also agreement among underwriters. investment banker. lead underwriter .

Underwriter.

An underwriter, typically an investment banker, may buy

an entire new securities issue from the company or government offering it and resell the issue as individual stocks or bonds to the public.

Or, in a best-efforts arrangement on a stock IPO, the underwriter may commit to selling as many shares as possible without actually buying the securities.

Part of the underwriter's job is to weigh the risks involved in taking on the financial responsibility of finding buyers against the profit to be made on the difference between the price paid for the issue and the profit it will generate.

Typically, a number of bankers join forces as a purchase group, or syndicate, to spread the risk around and to reach the widest possible market.

Insurance policies also need an underwriter. In this case, the term refers to a company that is willing to take the risk of insuring your life, property, income, or health in return for a premium, or payment.

Source: financial-dictionary.thefreedictionary.com

Category: Forex

Similar articles: