A clause in some underwriting agreements abolishing the agreement under certain, defined circumstances. For example, if the economy suddenly enters a severe recession, or the stock market falls 25%, it is unlikely that investors will be interested in a risky IPO. The market-out clause could then absolve the underwriting syndicate of its responsibility without penalty.
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An addition to an underwriting agreement that permits the underwriters to opt out of their commitment to distribute securities in the event of serious market disruptions.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.