Underwriting Commission Law and Legal Definition

Underwriting commission is the compensation that an underwriter receives for placing a new issue with investors. It is the fee which an investment banker charges for underwriting a security issue. Even if the company does not have to buy any shares, the fee is paid as a return for the implicit risk involved in the underwriting contract.

It is calculated as a discount from the price of the new issue. For instance, an issuer may sell the underwriter a bond at $90 per bond. The underwriter will then place the issue at $100, thus allowing it to make a $10 profit. This profit is the underwriting commission. Underwriting commission is also called a concession.