Understanding Underwriters Discount: Key Insights and Legal Implications
Definition & Meaning
The underwriter's discount refers to the difference between the price that an underwriter pays to the issuer of securities and the price at which those securities are offered to the public. This discount represents the fee charged by the underwriter for taking on the risk of purchasing bonds or certificates of participation (COPs) and reselling them. Until the securities are sold to investors, the underwriter holds the risk of ownership.
Legal Use & context
The term "underwriter's discount" is commonly used in the context of securities law and finance. It plays a crucial role in the issuance of bonds and certificates, where underwriters facilitate the sale of these financial instruments to the public. This term is particularly relevant in areas such as corporate finance, investment banking, and securities regulation. Users can manage related forms and procedures through resources like US Legal Forms, which provide templates drafted by qualified attorneys.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A company issues bonds with a face value of $1,000. The underwriter purchases these bonds for $950 each and sells them to investors for $1,000. The underwriter's discount is $50 per bond.
Example 2: A local government issues certificates of participation for a new project. The underwriter buys them at a discounted price of $980 and offers them to the public at $1,000. The underwriter's discount here is $20 per certificate.