Awarding the Issue

There are two ways in which the corporation may select an underwriter.  A corporation may elect to have multiple underwriters submit bids and choose the underwriter with the best bid. This is known as a competitive bid underwriting. A company may elect to select one firm to sell the issue and negotiate the terms of the offering with them. This is known as a negotiated underwriting. Most corporate offerings are awarded on a negotiated basis, while municipal bonds offering are usually awarded through com­petitive bidding.

The Underwriting Syndicate

Because most corporate offerings involve a large number of shares and a very large dollar amount, they will be offered through several underwriters known as the underwriting syndicate. The syndicate is a group of investment banks that have agreed to share the responsibility of marketing the issue. The managing underwriter, also known as the lead underwriter, leads the syndicate.

Selling Group

The syndicate may form a selling group in an effort to help market the issue.  Members of the selling group have no underwriting responsibility and may only sell the shares to investors for a fee known as the selling concession.

Underwriter’s Compensation

The group of broker dealers that make up the underwriting syndicate will be compensated based upon their role as a syndicate member. The only syndicate member that may earn the entire spread is the lead or managing underwriter

Management Fee

The lead or managing underwriter will receive a fee known as a management fee for every share that is sold. In most cases, the managing underwriter is the firm that negotiated the terms of the offering with the issuer and formed the syndicate.

Underwriter’s Fee

The underwriter’s fee is the cost of bringing the issue to market and is a fee assessed for each share that is sold by the syndicate. If there is any money remaining after all expenses are paid the syndicate members will split it based upon their commitment level in the underwriting.


Selling Concession

The selling concession will be paid to any syndicate member or selling group member who sells the shares to the investors. The selling concession is the only fee that the selling group members may earn.

Underwriting Spread

The total amount of the management fee, the underwriting fee, and the selling concession make up the total underwriting spread. This is the difference between the gross proceeds of the offering and the net proceeds to the issuer.















In this example the underwriting spread is $2.50 per share.


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