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Username: ForexGuy Rating:  Asked to: Talitha Taslim Date Created: 29 May 2019 |
| Category | 28 |
| Tag | Financial |
| Question | What is Eating Stock? |
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Hi ForexGuy, Eating stock refers to the forced purchase of a security when there are insufficient buyers. The term generally applies to underwriters of a company’s initial public offering (IPO). However, it also happens when stockbrokers needs to sell shares of a stock that is performing poorly and they are unable to find buyers. When a company goes public, it requires a certain number of subscribers, or people to purchase shares of the stock. When there aren't enough subscribers to cover the IPO, the underwriter generally steps in to purchase the remaining shares. This is when the underwriter is said to be eating stock. Sometimes, underwriters have a legal obligation to buy the stock in order to push the IPO through. This can initially put them at a loss despite their underwriting fee. |
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