Underwriting contract
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(Redirected from Firm commitment underwriting)
Template:Short description In investment banking,[1] an underwriting contract[2] is a contract between an underwriter and an issuer of securities.
The following types of underwriting contracts are the most common:
- In the firm commitment contract, the underwriter guarantees the sale of the issued stock at the agreed-upon price. For the issuer, it is the safest but the most expensive type of the contracts, since the underwriter takes the risk of sale.[2]
- In the best efforts contract, the underwriter agrees to sell as many shares as possible at the agreed-upon price.[2]
- Under the all-or-none contract, the underwriter agrees either to sell the entire offering or to cancel the deal.[2]
Stand-by underwriting, also known as strict underwriting or old-fashioned underwriting is a form of stock insurance: the issuer contracts the underwriter for the latter to purchase the shares the issuer failed to sell under stockholders' subscription and applications.[3]
References
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- ^ Page Module:Citation/CS1/styles.css has no content."Underwriting". Corporate Finance Institute. Retrieved 2022-11-16.
- ^ a b c d "The Investment Banking Handbook" by J. Peter Williamson, 1988, Template:ISBN , ""Underwriting Contracts", p. 128
- ^ "The Law of Securities Regulation" by Thomas Lee Hazen, 1996, Template:ISBN, p. 405.
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