What is gross spread?

It's the compensation that the underwriters of an initial public offering make to cover expenses, management fees, commission and risk. In practical terms, it's the difference between the underwriting price received by the issuing company and the actual price offered to investors.

Where have you heard about gross spread?

You'll probably be familiar with the term if you follow IPOs or participate in them. You may also have heard that the US IPO underwriting market has particularly high gross spreads, most of which cluster around 7% of proceeds.

What you need to know about gross spread.

To give an example, if a company receives £34 per share for its initial public offering, and the underwriters sell the stock to the public at £36 per share, the gross spread would be £2 per share.

The gross spread value can be influenced by variables such as size of issue, risk and volatility. The gross spread for an IPO can be higher than 10%, while the gross spread on a debt offering can be as low as 0.05%.