Series 24: Underwriting Compensation

Underwriting Compensation

The spread of a public offering is the difference between the public offering price and underwriter’s discounted price; said another way, it is the total proceeds less the issuer’s proceeds. The spread is often about 7% of the total proceeds. The spread is also referred to as the underwriting proceeds.

The spread can be divided into three main components:

• • The managing underwriter’s fee, which is the amount that is paid to the managing underwriter for managing the offering. Typically, but not always, the managing underwriter’s fee is around 20% of the spread. It is expressed as a dollar amount per share (e.g., $.28 on every $20 share). It is paid on every share in the offering whether sold by the underwriter or not.
• • The second component is called the underwriting fee. It is paid to the syndicate members for assuming the risk of unsold shares. It is typically around 20% of the spread, and it also is expre