Subscription (finance)


Subscription (finance)

Subscription refers to the process of investors signing up and committing to invest in a financial instrument, before the actual closing of the purchase.

Contents

New issues

Subscription period

When a new security is to be issued, investors typically have two weeks to submit their subscription orders. At the end of this "subscription period", the issuer announces the offering price and the method of allotment.

Allotment

Allotment is a method of distributing securities to investors when an issue has been oversubscribed. At the end of the subscription period, the demand for a new issue can exceed the number of shares or bonds being issued. In such cases, the underwriting bank allots the securities with the approval of the issuer, either by lottery or on the basis of a formula. An allotment formula usually takes into account the issuer's preferred target investor groups.

Oversubscription

A funding round is oversubscribed when the company has obtained for funding commitments from investors that in aggregate amount to more money than the company needs or intends to raise. It may be used informally to describe a state where there is more money available than the company needs.

See also



Wikimedia Foundation. 2010.