Devolvement

Devolvement occurs when an underwriter or a group of underwriters is forced to purchase unsold shares or securities from a public offering, particularly in cases where investor demand falls short of expectations. In the context of bond or equity markets, underwriters are often responsible for ensuring that a public offering is fully subscribed, and when they fail to sell all the securities, they are obligated to buy the remaining amount. Devolvement usually signals weak market demand for a particular offering and can impact the issuer's confidence and the reputation of the underwriters. It may occur in challenging market conditions, where investor appetite is low due to economic uncertainties.

Example

If a company’s initial public offering (IPO) is undersubscribed, the underwriters must buy the unsold shares, resulting in devolvement.