Reallowance

DEFINITION of 'Reallowance'

In securities underwriting, the fee that the underwriting group pays to a securities firm that is not part of the syndicate, but that still sells shares in the offering. Reallowance is typically a percentage of the underwriting spread negotiated by the selling syndicate for the issue. It provides a monetary incentive for a broker-dealer that is not part of the syndicate to sell shares of the issue to its own client base.

BREAKING DOWN 'Reallowance'

The selling syndicate may be amenable to parting with a portion of the underwriting spread in the form of reallowance for large issues where investor demand is somewhat uncertain. For example, if the underwriting spread for an issue priced at $30 is $2.50, the reallowance may range from 50 cents to 75 cents, depending on investor demand for the issue and the difficulty in placing it.

RELATED TERMS
  1. Underwriter Syndicate

    A temporary group of investment banks and broker-dealers who ...
  2. Breaking The Syndicate

    The dissolution of a group of investment bankers that created ...
  3. Syndicate

    A professional financial services group formed temporarily for ...
  4. Underwriting Agreement

    A contract between a group of investment bankers who form an ...
  5. Underwriting Spread

    The spread between the amount underwriters pay an issuing company ...
  6. Bulge Bracket

    A slang term used to describe the company or companies that issued ...
Related Articles
  1. Managing Wealth

    What is a Syndicate?

    A syndicate is a group of professionals that temporarily form into one entity to handle a large transaction that’s too big for each to handle alone.
  2. Personal Finance

    Is Insurance Underwriting Right For You?

    If you have excellent analytical skills and an eye for detail, this may be your calling.
  3. Personal Finance

    What is Underwriting?

    Underwriting is a term most often used in investment banking, insurance and commercial banking. Generally, underwriting means receiving a remuneration for the willingness to pay for or incur ...
  4. Markets

    What is a Syndicated Loan?

    A syndicated loan is one that involves a group of lenders (called the syndicate) who pool their lending resources to make a loan.
  5. Investing

    What is a Greenshoe Option?

    A greenshoe option is a provision in an underwriting agreement that allows the underwriter to buy up to 15% of the shares in an IPO at the offer price.
  6. Investing

    What is Spread?

    Spread has several slightly different meanings depending on the context. Generally, spread refers to the difference between two comparable measures.
  7. Investing

    What Does an Underwriter Do?

    In the investment world, an underwriter is a company that helps corporations or other issuing bodies distribute their securities.
  8. Investing

    Greenshoe Options: An IPO's Best Friend

    Find out how companies can save or boost their public offering price with these options.
  9. Personal Finance

    The Rise Of The Modern Investment Bank

    Get to know a little bit about the institutions whose actions help to guide free markets.
  10. Personal Finance

    Municipal Bond Tips For The Series 7 Exam

    Learn to distinguish between general obligation and revenue bonds to ace this test.
RELATED FAQS
  1. How does an underwriter syndicate work together on an initial public offering (IPO)?

    Learn how underwriting syndicates work together when helping a company undertake an initial public offering, and learn about ... Read Answer >>
  2. Do underwriters make guarantees to sell an entire IPO issue?

    Underwriters represent the group of representatives from an investment bank whose main responsibility is to complete the ... Read Answer >>
  3. What does the underwriter do in a new stock offering?

    Learn the role an underwriter plays for an initial public offering, and the steps an underwriter takes in preparing for an ... Read Answer >>
  4. Under what circumstances might a syndicated loan be arranged?

    Learn about the types of syndicated loans, why some lenders choose to establish or join a syndicate, and why some borrowers ... Read Answer >>
  5. What are examples of risks for all underwriter types?

    Learn about the risks faced by different types of underwriting activity. Explore specific examples of risks faced by insurance ... Read Answer >>
  6. An underwriting syndicate for a new municipal offering of $10,000,000 has been formed ...

    The correct answer is b. A divided or “Western” syndicate is one in which the members stand alone. When a member of such ... Read Answer >>
Hot Definitions
  1. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  2. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  3. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  4. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  5. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  6. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
Trading Center