Underwriter
In the process of securities issuance, an underwriter is a financial institution or intermediary that assists the issuer (such as a company or government) in arranging and selling securities. The main responsibilities of an underwriter include pricing, distribution, and providing market advice.
Definition: In the process of securities issuance, an underwriter is a financial institution or intermediary that helps the issuer (such as a company or government) arrange and sell securities. Their main responsibilities include pricing, distribution, and providing market consultation.
Origin: The concept of underwriters originated in the 19th-century financial markets when banks and financial institutions began assisting companies and governments in issuing bonds and stocks to raise funds. As financial markets evolved, the roles and responsibilities of underwriters also expanded and developed.
Categories and Characteristics: Underwriters are mainly divided into two categories: full underwriting and best efforts underwriting.
- Full Underwriting: The underwriter commits to purchasing all unsold securities from the issuer, bearing higher risk but also having the opportunity for higher rewards.
- Best Efforts Underwriting: The underwriter acts only as an intermediary, helping the issuer sell securities without bearing the risk of unsold securities, resulting in relatively lower compensation.
Specific Cases:
- Case 1: A tech company plans to go public with an initial public offering (IPO) and selects a well-known investment bank as the underwriter. The underwriter helps the company determine the issue price and sells the shares to investors through its extensive distribution network, successfully raising the expected funds.
- Case 2: A government plans to issue bonds for infrastructure development and selects a large commercial bank as the underwriter. The underwriter not only helps the government price and sell the bonds but also provides market analysis and consultation services to ensure the bonds are successfully issued.
Common Questions:
- Question: How do underwriters determine the issue price of securities?
Answer: Underwriters typically determine a reasonable issue price through market research, analyzing the company's financial status and industry prospects, and communicating with potential investors. - Question: Do underwriters affect the market performance of securities?
Answer: The reputation and distribution capabilities of underwriters can indeed affect the market performance of securities, but ultimately it depends on market demand and the fundamentals of the issuer.
