Series 26: Underwriting A Securities Issue

Underwriting a Securities Issue

For an open-end management company, underwriting a securities issue is a matter of registering the securities, meeting the minimum capital requirement of $100,000, distributing a prospectus and selling the shares. Closed-end companies and unit investment trusts must go through an initial public offering like any operating company. The reason for the difference is that open-end companies issue shares continuously on a day-to-day basis and can only be transacted at net asset value with the issuing company. Closed-end funds and UITs are issued once and bought and sold at a negotiated price on the open market.

The underwriting process for those investment companies whose shares sell on the open market begins with the selection of an underwriter and the preparation of a registration statement. The underwriter may be the sponsor itself or an affiliate of the company. The parties will proceed to develop the terms and structure of the offe