Underwriting Spread Law and Legal Definition
Underwriting Spread is the difference between the amount paid to an issuer in a new issue of securities and the price at which securities are offered for sale to the public. It is the underwriter's gross profit margin, usually expressed in points per unit of sale.
Spreads may vary widely and are influenced by the underwriter's expectation of market demand for the securities offered for sale and is contingent on the issue's size, the issuer's financial strength, the type of security, the status of the security and the type of commitment made by the underwriters.
The spread may range from a fraction of 1% for a bond issue to 25% for an initial public offering of a small company. The spread increases as the risks involved with the issuance increase.
