19:43
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Simple English definitions for legal terms
gross spread
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A quick definition of gross spread:
Gross spread is a term used in finance and investment banking. It refers to the difference between the price that an underwriter pays to the issuer of a security and the price paid by the public in the initial offering. This spread compensates the underwriter for their services and is made up of the manager's fee, the underwriter's discount, and the selling-group concession or discount. In simpler terms, gross spread is the profit that an underwriter makes from selling securities to the public.
A more thorough explanation:
Gross spread is a term used in finance and investment banking. It refers to the difference between the price paid by the underwriter to the issuer of a security and the price paid by the public in the initial offering. This spread compensates the underwriter for its services and includes the manager's fee, the underwriter's discount, and the selling-group concession or discount.
- An investment bank agrees to underwrite an initial public offering (IPO) for a company. The bank pays the company $10 per share and sells the shares to the public for $12 per share. The gross spread in this case is $2 per share ($12 - $10).
- A bond issuer sells $1 million worth of bonds to an underwriter at a discount price of $950,000. The underwriter then sells the bonds to investors for $1 million. The gross spread in this case is $50,000 ($1 million - $950,000).
These examples illustrate how the gross spread is calculated and how it compensates the underwriter for its services in bringing the security to market.