IPO Underwriting Mechanisms: A Comparison of Stand-By Underwriting and Other Methods

There are many discussions on such IPO selling mechanisms as book-building, fixed price and auction, but there are few on such underwriting mechanisms as stand-by, best-effort and firm commitment mechanisms. With the adoption of different underwriting methods, market participants will judge the level of offering prices based on the consideration of their own benefits. Therefore offering prices may be affected by different underwriting mechanisms. The firm commitment method is widely used in many developed countries. China has adopted mainly the stand-by method. With the development of China´s economy and stock market, China needs to encourage the practice of other kinds of mechanisms.