Standby Agreement Meaning

In a Best Efforts underinvestment, underwriters will do their best to sell all the titles offered, but the underwriter is under no obligation to buy all the securities. This type of underwriting agreement usually comes into play when the demand for an offer is likely to be lackluster. Under this type of agreement, all unsold securities are returned to the issuer. While the ability to buy shares below the market price seems to be an advantage of standby underwriting, the fact that there are still shares to buy from the songwriter indicates a lack of demand for supply. Standby-Underwriting thus transfers the risk of the company that enters the stock exchange (the issuer) to the investment bank (the underwriter). Because of this additional risk, underwriter fees may be higher.

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