Underwriting Spread (Gross Spread)
Definition
The underwriting spread, or gross spread, is the underwriters' compensation on a securities offering: the difference between the price investors pay and the net proceeds the issuer receives. On a typical US IPO of moderate size, the gross spread has customarily been around 7% of the deal, falling well below that for very large IPOs and for follow-ons (follow-ons often run in the low single digits; conventions vary by deal size and market).
The spread is conventionally split three ways: a management fee (to the lead banks for structuring), an underwriting fee (for bearing risk), and a selling concession (usually the largest slice, paid to syndicate members for placing shares). Economics are divided across the syndicate by role — bookrunners take the lion's share.
Debt underwriting spreads are far thinner, typically well under 1% for investment-grade bonds, reflecting lower risk and marketing effort.
Why interviewers ask
This is how banks get paid in ECM, so it comes up in 'how does the bank make money on this deal?' and 'what does an underwriter actually do?' questions. Citing the customary ~7% IPO convention (with the caveat that it scales down for big deals), the three-part fee split, and the equity-vs-debt fee gap shows commercial awareness.
Related terms
Interviews don't test definitions — they test recall under pressure.
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