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Reallowance

What is 'Reallowance'

In securities underwriting, the fee that the underwriting group pays to a securities firm that is not part of the syndicate, but that still sells shares in the offering. Reallowance is typically a percentage of the underwriting spread negotiated by the selling syndicate for the issue. It provides a monetary incentive for a broker-dealer that is not part of the syndicate to sell shares of the issue to its own client base.

Explaining 'Reallowance'

The selling syndicate may be amenable to parting with a portion of the underwriting spread in the form of reallowance for large issues where investor demand is somewhat uncertain. For example, if the underwriting spread for an issue priced at $30 is $2.50, the reallowance may range from 50 cents to 75 cents, depending on investor demand for the issue and the difficulty in placing it.


Further Reading


Sailing in rough water: market volatility and corporate finance
www.sciencedirect.com [PDF]
… increased as markets incorporated bearish worries over a deepening and continuing economic crisis in … of how influential is market volatility in financing decisions for the economy at large … turn and use them to motivate various hypotheses about the volatility–finance relationship …

Global government securities markets: economics and politics of recent market microstructure reformsGlobal government securities markets: economics and politics of recent market microstructure reforms
link.springer.com [PDF]
… increased as markets incorporated bearish worries over a deepening and continuing economic crisis in … of how influential is market volatility in financing decisions for the economy at large … turn and use them to motivate various hypotheses about the volatility–finance relationship …

The political economy of the Securities Act of 1933The political economy of the Securities Act of 1933
www.journals.uchicago.edu [PDF]
… increased as markets incorporated bearish worries over a deepening and continuing economic crisis in … of how influential is market volatility in financing decisions for the economy at large … turn and use them to motivate various hypotheses about the volatility–finance relationship …

World Bank financing for urban developmentWorld Bank financing for urban development
link.springer.com [PDF]
… increased as markets incorporated bearish worries over a deepening and continuing economic crisis in … of how influential is market volatility in financing decisions for the economy at large … turn and use them to motivate various hypotheses about the volatility–finance relationship …

4 Global Government Securities Markets: Economics and Politics of Recent Market Microstructure Reforms4 Global Government Securities Markets: Economics and Politics of Recent Market Microstructure Reforms
link.springer.com [PDF]
… increased as markets incorporated bearish worries over a deepening and continuing economic crisis in … of how influential is market volatility in financing decisions for the economy at large … turn and use them to motivate various hypotheses about the volatility–finance relationship …

Are there windows of opportunity for convertible debt issuance? Evidence for Western EuropeAre there windows of opportunity for convertible debt issuance? Evidence for Western Europe
www.sciencedirect.com [PDF]
… increased as markets incorporated bearish worries over a deepening and continuing economic crisis in … of how influential is market volatility in financing decisions for the economy at large … turn and use them to motivate various hypotheses about the volatility–finance relationship …

Sailing in rough water: Market volatility and corporate financeSailing in rough water: Market volatility and corporate finance
papers.ssrn.com [PDF]
… increased as markets incorporated bearish worries over a deepening and continuing economic crisis in … of how influential is market volatility in financing decisions for the economy at large … turn and use them to motivate various hypotheses about the volatility–finance relationship …



Q&A About Reallowance


Why might reallowance be used?

Reallowance may be used for large issues where investor demand is somewhat uncertain.

How much might reallowance cost?

The amount of reallowance can range from 5 cents to 75 cents depending on investor demand and difficulty in placing it.

What does "in securities underwriting" mean?

In securities underwriting means when an organization, such as a corporation or government agency, sells its own stock or debt instruments to investors.

What is reallowance?

Reallowance is a fee paid to broker-dealers that are not part of the syndicate but still sell shares in the offering.

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