In
investment banking, an underwriting contract
["The Investment Banking Handbook" by J. Peter Williamson, 1988, ]
""Underwriting Contracts", p. 128
/ref> is a contract between an underwriter
Underwriting (UW) services are provided by some large financial institutions, such as banks, insurance companies and investment houses, whereby they guarantee payment in case of damage or financial loss and accept the financial risk for liabilit ...
and an issuer of securities.
The following types of underwriting contracts are the most common:
* In the ''firm commitment contract,'' the underwriter guarantees the sale of the issued stock at the agreed-upon price. For the issuer, it is the safest but the most expensive type of the contracts, since the underwriter takes the risk of sale.[
* In the ''best efforts contract,'' the underwriter agrees to sell as many shares as possible at the agreed-upon price.][
* Under the '']all-or-none
All or none (AON) is a finance term used in investment banking or securities transactions that refers to "an order to buy or sell a stock that must be executed in its entirety, or not executed at all". Partial execution is not acceptable; the orde ...
contract'', the underwriter agrees either to sell the entire offering or to cancel the deal.[
''Stand-by underwriting'', also known as ''strict underwriting'' or ''old-fashioned underwriting'' is a form of stock insurance: the issuer contracts the underwriter for the latter to purchase the shares the issuer failed to sell under stockholders' subscription and applications.]["The Law of Securities Regulation" by Thomas Lee Hazen, 1996, , p. 405.]
References
{{Corporate finance and investment banking
Initial public offering
Contract law
Underwriting