What Does the Underwriter Do in a New Stock Offering?

The underwriter in a new stock offering serves as the intermediary between the company seeking to issue shares in an initial public offering (IPO) and investors. The underwriter helps the company prepare for the IPO, considering issues such as the amount of money sought to be raised, the type of securities to be issued, and the agreement between the underwriter and the company.

The underwriting agreement can take a number of different shapes. The most common type of underwriting agreement is a firm commitment in which the underwriter agrees to assume the risk of buying the entire inventory of stock issued in the IPO and sell to the public at the IPO price. Often, there is a group of underwriters for an IPO that shares in the risk for the offering, called the syndicate.


The investment bank then files a Form S-1 registration statement with the U.S. Securities and Exchange Commission (SEC), outlining the business of the company, the planned use for the capital raised by the IPO, the basics of the IPO and any legal issues the company may have. The SEC then has a cooling-off period when it investigates to ensure all material information about the IPO has been disclosed.

The underwriter then creates a draft prospectus to take on a road show to potential institutional investors. The road show seeks to create excitement for the IPO and involves conferences given to investors around the country. After the road show, the underwriter and company determine the final price for the IPO based on the orders received during the road show. Then, the syndicate allocates shares to investors. The final step is the first day of trading, when the investing public can first buy the stock on an exchange.

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  1. U.S. Securities and Exchange Commission. "What Is a Registration Statement?"

  2. U.S. Securities and Exchange Commission. "Quiet Period."

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