What is underwriting spread?
Underwriting spread is the difference between the price at which a new issue of shares or bonds is offered to the public by the underwriter and the price at which they bought it from the issuing company.
Where have you heard about underwriting spread?
When a company decides it wants to issue stock or bonds, it hires an underwriter. The underwriter will buy the issue for an agreed price, which it then attempts to sell to investors for a higher price. The difference forms the majority of an underwriting firm’s profits.
What you need to know about underwriting spread.
A number of factors can determine the size of an underwriting spread. An issue by a large well-known company considered to be financially stable is likely to command a higher price per share during the public offering. The type of security also makes a difference. Stocks may bring in a better return than a bond issue, for instance.
Depending on the size of the new issue and the price that the shares can achieve on the open market, the underwriting spread can be significant. It can vary from less than 1% to 25%.
Find out more about underwriting spread.
Read our definition of underwriting.