What is an Underwriter?

When a business is seeking to raise finance from the public by way of a share issue, an underwriter guarantees the business that the money will be raised.

This is normally done by the underwriter guaranteeing the price of the shares and agreeing to purchase any shares not subscribed for by the public.

The underwriter is normally an investment bank and due to this risks involved, will charge a substantial fee for underwriting the share offer. The underwriter controls the risk by assessing the value and riskiness of the business issuing the shares, setting the share issue price at the correct level, and obtaining commitments from large institutions to take up some of the shares.

For further information see the Wikipedia underwriting definition.

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Last modified March 23rd, 2016 by Team

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