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Gross Spread

Gross spread refers to the difference between the price an underwriter pays to an issuer for securities and the price at which the underwriter sells those securities to the public. This spread compensates the underwriter for its services, including marketing, distributing the securities, and assuming the risk of selling them. The gross spread is typically expressed as a percentage of the total offering amount and varies depending on the complexity and size of the deal.

Example

In an IPO, the underwriter buys shares from the issuing company at $10 per share and sells them to the public at $12 per share, resulting in a gross spread of $2 per share, or 20%.

Key points

• The difference between the underwriter’s purchase price and the public sale price of securities.

• Compensates underwriters for their role in distributing and selling securities.

• Expressed as a percentage of the total offering amount.

Quick Answers to Curious Questions

It compensates underwriters for their services, including marketing, distribution, and assuming the risk of selling the securities.

A higher gross spread increases the cost of raising capital for the issuing company, impacting overall proceeds from the offering.

Factors include the size of the offering, market conditions, the risk associated with the securities, and the complexity of the deal.
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