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 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 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 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 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 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 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 …-
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.
