Underwriter

An underwriter is the investment bank, or group of banks, that manages the process of bringing a company's shares or bonds to market, most visibly in an IPO. The underwriter helps the company decide on an offering structure, runs the book building process to gauge investor demand and set a price, and then distributes the shares to investors.

In a typical firm commitment underwriting, the underwriter buys the shares from the company at the agreed offering price and then resells them to investors, taking on the risk itself if the shares do not sell as expected at that price. When multiple banks are involved, one or more lead underwriters, sometimes called bookrunners, coordinate the deal and manage the order book, while other syndicate members help distribute shares to a wider set of investors in exchange for a smaller share of the underwriting fee.

Underwriters play the same core role in follow-on offerings, secondary offerings, and bond issuances, not just IPOs, pricing and placing new securities with investors in exchange for a fee based on the size of the deal. In an IPO, the lead underwriter also frequently holds a greenshoe option and can act to stabilize the stock's price in its early days of trading, buying shares in the open market if needed to support a price that is trading below the offering level.