Qualified advisers answering your
Financial Questions
call 0800 092 1245

What Is An Underwriter? (Part One)

Underwriters are very common in investment markets especially stock markets and insurance markets although the specific role of the two does differ. In affect an underwriter will take some of the risk from a share issue or other financial transaction in return for a commission (payment).

Stock Market Underwriter

When a company is looking to raise funds for expansion, to secure the future of the company or any other reason, they need to ensure that the money will be raised even if existing shareholders do not take up their entitlements. This is where underwriters will come in and 'underwrite' a number of shares in exchange for a commission. If the fund raising is successful and all shares are taken up by shareholders they will not be forced to buy any shares and walk away with the commission as their profit.

However if not all of the shares are taken up, those remaining they will be acquired by the underwriters (on a pro-rata basis) so that the underlying company is still able to raise the total funds required. The shares will be acquired at the fund raising price and as with the Bradford and Bingley, underwriters could be left with a substantial liability if the share price falls below the cost price. In healthy investment markets it can be money for nothing, but in bad times (as we are seeing now) the liabilities are potentially enormous.

Share this..

Related stories

Financial Guides

Financial Calculators

Our useful calculators can help you get your finances in order:

Latest News


Helpful new tax year facts that could affect you and your money

Blog | Seven helpful new 2016/2017 tax year facts that could affect you and your money. Our recent online blog shares a brief outline on how to stay up to date.

Read more

Useful Links

Popular Searches

Please Enter More Details

Enter More Details