Underwriting (Firm Commitment)

The process whereby a financial intermediary purchases all or a portion of a security issue from an issuer for eventual distribution to the public. The intermediary (underwriter) makes the total amount or the portion underwritten available to the issuer at the opening of the offer, thus bearing the risk of a possible poor investors’ response to the issue. Underwriting is thus a form of insurance which protects an issuer from adverse response to its security issue. (see also best effort underwriting and standby underwriting).