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".

BREAKING DOWN '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").

  1. Pot Is Clean

    A slang phrase referring to a situation in which an underwriter ...
  2. Public Offering Price - POP

    The price at which new issues of stock are offered to the public ...
  3. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs ...
  4. Oversubscribed

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  5. Underwriting

    1. The process by which investment bankers raise investment capital ...
  6. Eating Stock

    The forced purchase of a security when there are insufficient ...
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