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In the context of share issues or offers, the financial institution that agrees to purchase or to procure other institutions (called sub-underwriters) to purchase the shares to the extent that they are not sold under the offer. Most large share issues and offers by listed companies are underwritten.
The underwriting agreement contains an agreement by the underwriter(s) to purchase the offered securities from the issuer or other seller and to resell them to the public, the underwriting discount, representations and warranties of the parties, certain covenants, expense allocation and indemnification provisions.
There are a number of standard documents that lawyers must prepare for an initial public offering (IPO) of a company. The main document is the S-1 registration statement.
The underwriting agreement contains the details of the transaction, including the underwriting group's commitment to purchase the new securities issue, the agreed-upon price, the initial resale price, and the settlement date. A best-efforts underwriting agreement is mainly used in the sales of high-risk securities.
In the securities market, underwriting involves determining the risk and price of a particular security. It is a process seen most commonly during initial public offerings, wherein investment banks first buy or underwrite the securities of the issuing entity and then sell them in the market.