Market Out Clause


DEFINITION of 'Market Out Clause'

A stipulation in an underwriting agreement that allows the underwriter to cancel the agreement without penalty. A market out clause can be activated for specific reasons such as souring market conditions or simply because the underwriter is having difficulty in selling the company's stock. However, though the reasons can be varied, they must be noted in the market out clause.

BREAKING DOWN 'Market Out Clause'

The underwriter for an initial public offering (IPO) contracts with the issuing company to market and sell the company's stock to investors in the primary market. Of course, this entails a fair amount of risk resulting from overhype (witness Groupon) and other factors. Hence, a market out clause is generally invoked when the market has hit a rough patch or other IPOs have underperformed.

  1. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs ...
  2. Underwriting

    1. The process by which investment bankers raise investment capital ...
  3. Gross Spread

    The difference between the underwriting price received by the ...
  4. Investment Banking

    A specific division of banking related to the creation of capital ...
  5. Ex Works (EXW)

    An international trade term requiring the seller to make goods ...
  6. Investment Banker

    Someone working at an institution raising capital for companies, ...
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