Issuing New Security


Equity is sold to all interested investors in a cash offer. If the cash offer is a public one, banks are usually involved. Banks are financial intermediaries that perform a wide variety of services. In addition to taking deposits and making loans, they also aid in the sale of securities, facilitate mergers and other corporate reorganizations, act as brokers to both individual and institutional clients, and trade for their own accounts. Until late 2008 much of this activity was undertaken by investment banks. However, the financial crisis at the time resulted in investment banks either disappearing entirely or changing into normal banks.

These kind of banks are issuing securities in three ways.

1.Firm Commitment
2.Best efforts cash offer
3.Dutch auction

What is firm commitment?

A company negotiates an agreement with a bank to underwrite and distribute the new shares. A specified number of shares are bought by underwriters and sold at higher price.

What is best efforts cash offer?

Company has underwriters sell as many of the new shares as possible at the agreed-upon price. There is no guarantee concerning how much cash will be raised. Some best-efforts offerings do not use an underwriter.

What is dutch auction?

Company has underwriters auction shares to determine the highest offer price obtainable for a given number of shares to be sold.