SIE practice questionmediumUnderwriter Spread
The underwriting spread (or gross spread) in a firm commitment offering represents:
- AThe fee paid to the transfer agent
- BThe commission charged to investors who purchase shares
- CThe SEC filing fee paid by the issuer
- DThe difference between the price paid to the issuer and the public offering price✓ Correct answer
Explanation
Why D — The difference between the price paid to the issuer and the public offering price
The underwriting spread is the difference between the price the underwriter pays the issuer for the securities and the public offering price (POP) at which they are sold to investors. For example, if the underwriter buys shares from the issuer at $18 and sells them to the public at $20, the $2 spread is the underwriter's compensation. This spread is divided among the managing underwriter, syndicate members, and selling group members. It is NOT a commission charged to investors — investors pay the POP.
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