Define: Competitive Bid Underwriting

Competitive bid underwriting is a process in which multiple underwriters submit bids to compete for the opportunity to underwrite a securities offering.

In competitive bid underwriting, the issuer solicits bids from underwriters and selects the bid with the most favourable terms, such as the lowest underwriting fee or the highest offering price.

Competitive bid underwriting can result in lower underwriting fees for the issuer and can also lead to a more efficient and transparent underwriting process.

One potential disadvantage of competitive bid underwriting is that it may not always result in the best underwriting terms for the issuer, as the focus is primarily on cost rather than the underwriter’s expertise or track record.

Competitive bid underwriting is commonly used for municipal bond offerings, but it can also be used for other types of securities offerings, such as corporate bonds or initial public offerings.

Underwriters are selected based on their bids, which typically include the underwriting fee, the proposed offering price, and any other relevant terms and conditions.

The underwriter is responsible for purchasing the securities from the issuer and reselling them to investors, as well as providing advice and assistance in structuring the offering.

Yes, competitive bid underwriting is subject to regulations from securities regulators, such as the Securities and Exchange Commission (SEC), to ensure fair and transparent practices.

Issuers can ensure a successful competitive bid underwriting process by conducting thorough due diligence on potential underwriters, clearly defining their requirements and expectations, and carefully evaluating and comparing the bids received.