Types of Underwriting Commitments

syndicate managers fee

10-20%

underwriting syndicate fee

20-30%

selling concession

50-60%

mini-max offering

A mini-max offering is a best efforts underwriting with a floor and a ceiling on the dollar amount of securities the issuer is willing to sell. The underwriter must locate enough interested buyers to support the minimum (floor) issuance requirement.

over-allotment option

An activity used to stabilize the after-market price of a recently issued security. If the price increases above the offer price, dealers can cover their short position by exercising an over-allotment option (also referred to as a green shoe option) by either increasing demand in the case of covering a short position or increasing supply in the case of over-allotment option exercise.

standby underwriter

An investment banker that agrees to purchase any part of an issue that has not been purchased by current stockholders through a rights offering. The firm exercises the remaining rights, maintains a trading market in the rights, and offers the stock acquired to the public.

public offering price or POP

Price at which a NEW ISSUE of securities is offered to the public by underwriters.

underwriting spread

The difference between the price the underwriter pays the issuer and the public offering price. Also known as the "load" or "sales charge."

best efforts underwriting

The type of underwriting in which the underwriter sells as much of the issue as possible, but can return any unsold shares to the issuer without financial responsibility.

Market-out clause

allows a firm commitment underwriter to be released from liability if events occur making the sale of issue impossible or difficult

Firm Commitment

principal capacity, underwriter has risk

underwriting proceeds

the price the issuer receives

all or none underwriting

underwriter must either sell all of the shares or cancel the underwriting.