What's an underwriter in an initial public offering (IPO)?
IPO underwriters are usually investment banks who have IPO specialists in their team. These banks are hired by the company that wants to go to the stock market and ensures that all regulatory requirements are satisfied, but is also hired to make the IPO a success.
The underwriter reaches out to its network of investment organisations such as mutual funds, insurance companies and other large investment companies to gauge investment interest and organises a roadshow. The amount of interest received by these large institutional investors help the underwriter determine the IPO price of the company's stock.
At the actual IPO, the underwriter guarantees a specific number of shares will be sold at that initial price and will purchase any surplus shares itself.
Related role: Stabilisation agent
Next to being the underwriter, investment banks fight hard to become theof a company's IPO.