What is devolvement?
Within the financial sector of investment banking, devolvement is a process which occurs due to an undersubscribed investment issue. In this process the underwriting investment bank is forced to purchase the unsold securities. This can indicate that the market is having a negative reaction to the issue, which can then impact demand.
Where have you heard about devolvement?
An underwriter is usually brought on when there is a public offering in a primary market. Within devolvement, the underwriter is required to subscribe to the remaining shares – thus, the outstanding unsubscribed number is devolved onto the underwriter. This process is also sometimes referred to as hard underwriting.
What you need to know about devolvement.
Devolvement is a high risk for the underwriting investment bank, due to undersubscribed shares being bought at a higher than market value price. This leads to the bank not wanting to hold on to the flailing issue and liquidating their shares in the market, often at a financial loss to the bank. India has the highest levels of devolvement. The Securities and Exchange Board of India publishes instructions and an approved method of computation relating to the breadth of the devolvement onto a specific underwriter, in cases where there are many underwriters or sub-underwriters.