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.
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.