Gross spread

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Gross spread

The fraction of the gross proceeds of an underwritten securities offering that is paid as compensation to the underwriters of the offering.

Gross Spread

In a public offering, the difference between the price an underwriter pays an issuer and the price at which it sells the offering to the public. That is, an underwriter pays the issuer an agreed-upon price to purchase an issue, which it then attempts to place with investors. When it places the issue, it charges the investor a certain price like any other trade. The difference is known as the gross spread; it forms the bulk of an underwriting firm's profits. See also: Fully subscribed, Overbooked, Underbooked.

gross spread

The difference in the price that an investor pays for a new security issue and the price paid the issuer by the lead underwriter. The gross spread is a function of a number of variables including the size of the issue and the riskiness, or price volatility, of the security. Also called underwriting spread.

Gross spread.

In an initial public offering (IPO), the gross spread is the difference between what the underwriters pay the issuing company per share and the per share price that investors pay. It's usually about 7%.

For example, if a stock is to be offered to the public at $10 a share, the underwriters may pay the issuing company around $9.30 per share. With millions of shares being sold, the 70 cents per share adds up to millions of dollars for the investment bank.

References in periodicals archive ?
1998) and to lower underwriting spreads and offering yields for nonconvertible debt issues (Miles and Miller, 2000).
It would be irrational for issuers to increase their underwriting spreads just to get another 20 percent of their issue into retail investors' hands at the same wholesale interest rates.
Market competition has allowed issuers to compress the underwriting spread on their deals so low that broker-dealers are pricing primary deals at a wholesale level and thus selling almost exclusively to wholesale buyers.
A 5 percent underwriting spread will generate a $25 commission for the retail broker handling the $5,000 block for a retail investor.
Little money can be made as a co-manager in the current market because underwriting spreads are usually so slim.
The objective of this paper is to analyze the joint behavior of underwriting spreads and initial returns on equity issues for a large sample of issues over a 21-year period.
This paper uses a simultaneous equations model in which underwriting spreads (direct costs) and underpricing (indirect costs) are allowed to be jointly determined for both IPOs and SEOs.
Erdman's hero quickly realizes that rating fees and municipal underwriting spreads offer little opportunity for a return to the high profit margins of his leveraged-buyout days.
Therefore, the equity issues of higher management quality firms will have more reputable underwriters, smaller underwriting spreads, and other expenses, and smaller SEO discounts.
Third, we find that SEO firms with better and more reputable managements are associated with lower underwriting spreads.
Investor options reduce underwriter inventory risk, while they simultaneously increase information costs, which makes their effect on underwriting spreads uncertain; therefore it can be approached only through empirical testing.
Empirical tests, after controlling for issue size and risk, demonstrate that underwriting spreads are significantly higher than regular bonds for bonds with complex structure or tax treatment.