Undersubscribed

AAA

DEFINITION of 'Undersubscribed'

A situation in which the demand for an initial public offering of securities is less than the number of shares issued. Also known as an "underbooking".

INVESTOPEDIA EXPLAINS 'Undersubscribed'

Typically, the goal of a public offering is to price the security issue at the exact price at which all the issued shares can be sold to investors, so there will be neither a shortage nor a surplus of securities. If there is more demand for a public offering than there is supply (shortage), it means a higher price could have been charged and the issuer could have raised more capital. On the other hand, if the price is too high, not enough investors will subscribe to the issue and the underwriting company will be left with shares it either cannot sell or must sell at a reduced price, incurring a loss. Sometimes, when underwriters can't find enough investors to purchase IPO shares, they are forced to purchase the shares that could not be sold to the public (also known as "eating stock").

RELATED TERMS
  1. Syndicate

    A professional financial services group formed temporarily for ...
  2. Backstop Purchaser

    An entity that agrees to purchase all the remaining, unsubscribed ...
  3. Prospectus

    A formal legal document, which is required by and filed with ...
  4. Fully Subscribed

    A situation in which an underwriting firm has successfully sold ...
  5. Public Offering Price - POP

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

    The forced purchase of a security when there are insufficient ...
RELATED FAQS
  1. Why is Manchester United (MANU) carrying so much debt?

    The takeover of Manchester United by the Glazer family beginning in 2005 saddled the historic club with substantial amounts ... Read Full Answer >>
  2. In what ways does government regulation impact the insurance sector?

    Regulation is not consistent among all forms of insurance. The kinds of regulations imposed on AIG for guaranteeing credit ... Read Full Answer >>
  3. How does the strength of the IPO market affect the drugs sector?

    The strength in the IPO market is an important indicator of liquidity, risk appetite and innovation in the drugs sector. ... Read Full Answer >>
  4. Why are some spin-offs taxable and some are tax-free?

    The manner in which a parent company structures the spinoff and divests itself of a subsidiary or division determines whether ... Read Full Answer >>
  5. How does an underwriter syndicate work together on an initial public offering (IPO)?

    An underwriting syndicate is a group of investment banks that share the responsibility of marketing the shares of a company ... Read Full Answer >>
  6. Who are Berkshire Hathaway's (BRK.A) main competitors?

    Led by renowned investor Warren Buffett, Berkshire Hathaway (BRK.A) is involved with multiple sectors of industry, facing ... Read Full Answer >>
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. Fundamental Analysis

    Interpreting A Company's IPO Prospectus Report

    Learn to decipher the secret language of the IPO prospectus report - it can tell you a lot about a company's future.
  3. Investing

    5 Tips For Investing In IPOs

    Thinking of investing in IPOs? Here are five things to remember before jumping into these murky waters.
  4. 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.
  5. Entrepreneurship

    How Microfinance and Investment Banking Compare

    Investment banks and microfinance institutions (MFIs) provide similar services, but the clients they serve and the incentives that motivate them are very different.
  6. Entrepreneurship

    Should I Have An IPO on My Business

    The ultimate outside investment opportunity is going public through an initial public offering. However, IPOs come with costs that you may want to avoid.
  7. Fundamental Analysis

    Why Investment Bankers Need Financial Advisors

    Even the most successful investment bankers need financial advisors. Here's why.
  8. Fundamental Analysis

    Why Investment Bank IPO Valuations Go Wrong

    The costly services of investment banks don’t necessarily guarantee accuracy in IPO pricing.
  9. Stock Analysis

    Adjusting Price Charts To Secondary Offerings

    Secondary offerings may require rapid readjustment of trading strategies.
  10. Economics

    Explaining the Glass-Steagall Act

    An act the U.S. Congress passed in 1933 as the Banking Act, which prohibited commercial banks from participating in the investment banking business.

You May Also Like

Hot Definitions
  1. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  2. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  3. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  4. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  5. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center