Definition of Firm commitment underwriting

Firm commitment underwriting

An undewriting in which an investment banking firm commits to buy the
entire issue and assumes all financial responsibility for any unsold shares.

Advance commitment

A promise to sell an asset before the seller has lined up purchase of the asset. This
seller can offset risk by purchasing a futures contract to fix the sales price.

Affirmative covenant

A bond covenant that specifies certain actions the firm must take.

All-or-none underwriting

An arrangement whereby a security issue is canceled if the underwriter is unable
to re-sell the entire issue.

Commitment

A trader is said to have a commitment when he assumes the obligation to accept or make
delivery on a futures contract. Related: Open interest

Commitment fee

A fee paid to a commercial bank in return for its legal commitment to lend funds that have
not yet been advanced.

Confirmation

he written statement that follows any "trade" in the securities markets. Confirmation is issued
immediately after a trade is executed. It spells out settlement date, terms, commission, etc.

Firm

Refers to an order to buy or sell that can be executed without confirmation for some fixed period. Also,
a synonym for company.

Firm's net value of debt

Total firm value minus total firm debt.

Firm-specific risk

See:diversifiable risk or unsystematic risk.

Intrinsic value of a firm

The present value of a firm's expected future net cash flows discounted by the
required rate of return.

Neglected firm effect

The tendency of firms that are neglected by security analysts to outperform firms that
are the subject of considerable attention.

Production-flow commitment

An agreement by the loan purchaser to allow the monthly loan quota to be
delivered in batches.

Small-firm effect

The tendency of small firms (in terms of total market capitalization) to outperform the
stock market (consisting of both large and small firms).

Target firm

A firm that is the object of a takeover by another firm.

Underwriting

Acting as the underwriter in a purchase and sale.

Underwriting fee

The portion of the gross underwriting spread that compensates the securities firms that
underwrite a public offering for their underwriting risk.

Underwriting income

For an insurance company, the difference between the premiums earned and the costs
of settling claims.

Underwriting syndicate

A group of investment banks that work together to sell new security offerings to
investors. The underwriting syndicate is led by the lead underwriter. See also: lead underwriter.
Underwritten offering
A purchase and sale.

Underwriting

Evaluating and classifying potential risk of a client.

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