Eating Stock

AAA

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.

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.

RELATED TERMS
  1. Red Herring

    A preliminary prospectus filed by a company with the Securities ...
  2. Gun Jumping

    1. The illegal practice of soliciting orders to buy a new issue ...
  3. Lock-Up Agreement

    A legally binding contract between the underwriters and insiders ...
  4. Underwriting

    1. The process by which investment bankers raise investment capital ...
  5. Public Offering Price - POP

    The price at which new issues of stock are offered to the public ...
  6. Prospectus

    A formal legal document, which is required by and filed with ...
Related Articles
  1. Stock Basics Tutorial
    Investing Basics

    Stock Basics Tutorial

  2. How An IPO Is Valued
    Investing

    How An IPO Is Valued

  3. IPO Basics Tutorial
    Retirement

    IPO Basics Tutorial

  4. Alibaba's Goal: Supplant eBay, Amazon ...
    Stock Analysis

    Alibaba's Goal: Supplant eBay, Amazon ...

comments powered by Disqus
Hot Definitions
  1. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center