• The process in which an investment dealer buys a security issue from the issuing firm at a lower price than that for which he or she plans to sell it, thereby guaranteeing the issuer a specified amount from the issue and assuming the risk of price changes between the time of purchase and the time of sale. Through this process new financial securities are created in the primary market.
• The process whereby insurers identify and quantify the amount of risk posed by an applicant for an insurance policy; the process whereby investment bankers arrange to distribute newly issues securities to the public.
• The procedure by which investment bankers raise investment capital from investors on behalf of corporations and municipalities that are issuing securities.
• Acting as the underwriter in a purchase and sale.
| ||Embedded terms in definition|
Purchase and sale
| ||Referenced Terms|
| ||Best efforts agreement: An Underwriting agreement where the syndicate agrees to try to sell the issue, but the sale is not guaranteed.|
| ||Best efforts sale: A method of securities distribution/ Underwriting in which the securities firm agrees to sell as much of the offering as possible and return any unsold shares to the issuer. As opposed to a guaranteed or fixed price sale, where the underwriter agrees to sell a specific number of shares (with the securities firm holding any unsold shares in its own account if necessary).|
| ||Divided account: Refers to a new issue Underwriting whereby each member is responsible to distribute his allocated portion of the deal. After the member sells his portion, his liability ceases with regard to the syndicate. This compares to an Undivided Account.|
| ||Eastern account: Refers to an undivided Underwriting account. This compares to the Western Account.|
| ||Effective spread: The gross Underwriting spread adjusted for the impact of the announcement of the common stock offering on the firm's share price.|
| ||Related Terms|
| ||All or none underwriting|
Firm commitment underwriting