What is IPO hard underwriting/soft underwriting?

Posted by admin

February 24, 2010

Hard underwriting refers to an exercise when an underwriter agrees to buy his commitment at its earliest stage. The underwriter guarantees a fixed amount to the issuer from the issue. If the shares are not subscribed by investors, the issue is devolved on underwriters and they have to bring in the amount by subscribing to the shares. Soft underwriting refers to a process when an underwriter agrees to buy the shares at later stages as soon as the pricing process is complete. Subsequently, he places those shares with institutional players. The soft underwriter also holds an option to invoke a force majeure (acts of God) clause in case there are certain factors beyond the control that can affect the underwriter’s ability to place the shares with the buyers.

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