Firm Commitment Under a firm commitment underwriting,the investment bank buys the securities outright from the issuing firm. Obviously,they need to make a profit,so they buy at "wholesale"and try to resell at "retail". To minimize their risk,the investment bankers combine to form an underwriting syndicate to share the risk and help sell the issue to the public. slide 15
slide 15 Firm Commitment Firm Commitment Under a firm commitment underwriting, the investment bank buys the securities outright from the issuing firm. Obviously, they need to make a profit, so they buy at “wholesale” and try to resell at “retail”. To minimize their risk, the investment bankers combine to form an underwriting syndicate to share the risk and help sell the issue to the public
Best Efforts Under a best efforts underwriting,the underwriter does not buy the issue from the issuing firm. Instead,the underwriter acts as an agent, receiving a commission for each share sold,and using its "best efforts"to sell the entire issue. This is more common for initial public offerings than for seasoned new issues. slide 16
slide 16 Best Efforts Best Efforts Under a best efforts underwriting, the underwriter does not buy the issue from the issuing firm. Instead, the underwriter acts as an agent, receiving a commission for each share sold, and using its “best efforts” to sell the entire issue. This is more common for initial public offerings than for seasoned new issues