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Underwriter

The investment bank or group of banks that prices an offering, buys the shares from the issuer, and distributes them to investors for a fee.

In a firm-commitment deal the syndicate takes real risk: it buys the whole offering and owns whatever it fails to place. The lead bookrunner, listed first on the cover, runs the book and controls ipo-allocation. The fee, or gross spread, is commonly around 7% on a small IPO and far lower on large ones and on follow-ons.

Underwriters also run syndicate-stabilization after the debut, and their research arms initiate analyst-coverage once the quiet-period ends, which is a scheduled event rather than a surprise.

Example: a $400M IPO with a 6.5% spread pays the syndicate $26M. The lead might keep 40% of that, $10.4M, with the rest split among five co-managers.

Related: ipo, book-building, greenshoe, syndicate-stabilization, ipo-allocation

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Bid-ask spread in an order bookSell orders stacked above buy orders with a gap between the best of each.SELLERS (asks)50.0690050.051,40050.0460050.011,10050.002,30049.99800spread = 0.03BUYERS (bids)
The bid-ask spread. Buy orders sit below, sell orders above, and the gap between the best bid (50.01) and best ask (50.04) is the spread you pay to cross. Bar length shows the size resting at each price.

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