Eating Stock
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Definition of 'Eating Stock'The forced purchase of a security when there are insufficient buyers. Eating stock often applies to underwriters of an initial public offering (IPO), if a certain level of subscription is guaranteed but is not met. This allows the company going public to have a better approximation for the amount of capital it will raise from the offering. |
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Investopedia explains 'Eating Stock'Underwriters mitigate the risk associated with eating stock, in IPOs that it offers, by charging a substantial underwriting fee. Eating stock does not mean that the underwriter will take a loss on the entire venture, as the underwriting fee may exceed the cost of shares that it was forced to absorb. |
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