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.

BREAKING DOWN '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."

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