Standby Underwriting Law and Legal Definition

Standby underwriting is a type of underwriting in which an investment bank or the underwriter agrees to purchase the portion of the new securities issue that remains after a public offering.

A standby underwriting exists when a company has offered its existing shareholders the right to purchase additional shares. The issuer contracts the underwriter for the latter to purchase the shares the issuer failed to sell under stockholders' subscription and applications. This guarantees that the issuer will raise the capital it intends to raise, but leaves the underwriters with the possibility that they must purchase an issue with low value. Underwriters charge a standby fee for standby underwriting.

Stand-by underwriting is also known as strict underwriting or old-fashioned underwriting.