Following the recommendation made by the MMC in its report of February 1992, the guidance focuses on the use of tendering for the sub-underwriting and on the circumstances in which deep discounted issues might be advantageous.
In the UK, share issues by companies whose shares are already listed are typically underwritten. This involves the appointment of a lead underwriter, who agrees to subscribe, at the issue price, for any shares not taken up by the shareholders or others.
The lead underwriter will normally choose to lay off some or all of the associated risk with sub-underwriters, after taking advice from the companyÕs broker on the arrangement of the sub-underwriting. An alternative to this underwriting procedure is a deep discounted issue, where the intention is to offer shares at a sufficiently large discount to the current market price to ensure take-up of the issue without the need for underwriting.
