Gross Spread

AAA

DEFINITION of 'Gross Spread'

The difference between the underwriting price received by the issuing company and the actual price offered to the investing public. The gross spread is the compensation that the underwriters of an initial public offering (IPO) make to cover expenses, management fees, commission (or takedown) and risk. The majority of profits that the underwriting firm earns through the deal are often achieved through the gross spread. In addition to the gross spread, an initial public offering typically involves "fixed costs," such as legal and accounting consultants, and registration fees.

INVESTOPEDIA EXPLAINS 'Gross Spread'

A company, for example, may receive $36 per share for its initial public offering. If the underwriters sell the stock to the public at $38 per share, the gross spread - the difference between the underwriting price and the public offering price - would be $2 per share. The gross spread value can be influenced by variables such as the size of the issue, risk and volatility. Also called "gross underwriting spread," "spread" or "production."

RELATED TERMS
  1. Investment Bank - IB

    A financial intermediary that performs a variety of services. ...
  2. Market Out Clause

    A stipulation in an underwriting agreement that allows the underwriter ...
  3. Lead Underwriter

    A investment bank or other financial outfit that has the primary ...
  4. Underwriting

    1. The process by which investment bankers raise investment capital ...
  5. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs ...
  6. Public Offering Price - POP

    The price at which new issues of stock are offered to the public ...
RELATED FAQS
  1. No results found.
Related Articles
  1. Brokers

    Brokerage Functions: Underwriting And Agency Roles

    Learning about these various activities can give insight into how securities are issued and traded.
  2. Investing Basics

    The 5 Best And Worst IPOs

    The market for equities has gone through numerous crises, but when an IPO hits the market, it can create lots of excitement for investors and can generate billions of dollars for the company.
  3. Investing Basics

    Famously Disappointing IPOs

    IPOs may seem like an enticing and exciting investment, but history suggests that IPOs are far from a sure thing.
  4. Investing Basics

    IPOs For Beginners

    IPO is one of the few market acronyms that almost everyone is familiar with. Discover if IPOS are worth all the attention.
  5. Investing

    5 Tips For Investing In IPOs

    Thinking of investing in IPOs? Here are five things to remember before jumping into these murky waters.
  6. Investing

    Top IPO Nations

    We'll look at which countries lead the world in IPOs and how that correlates with their economic health.
  7. Investing

    How An IPO Is Valued

    The initial valuation of an IPO can determine the success or failure of a specific stock - but how is that price determined?
  8. Retirement

    IPO Basics Tutorial

    What's an IPO, and how did everybody get so rich off them during the dotcom boom? We give you the scoop.
  9. Investing

    Additional Paid-In Capital

    Additional paid-in capital is an account in the equity section of a balance sheet. It represents the additional amount paid for the company’s shares over the par value of the shares. Additional ...
  10. Investing

    What's Investment Banking?

    An investment bank is a special type of bank involved in a variety of large and complex financial services for major institutions.

You May Also Like

Hot Definitions
  1. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  2. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  3. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
  4. Investment Grade

    A rating that indicates that a municipal or corporate bond has a relatively low risk of default. Bond rating firms, such ...
  5. Fringe Benefits

    A collection of various benefits provided by an employer, which are exempt from taxation as long as certain conditions are ...
  6. Irrevocable Trust

    A trust that can't be modified or terminated without the permission of the beneficiary. The grantor, having transferred assets ...
Trading Center