undersubscribed

Undersubscribed

A situation in which the demand for an initial public offering of securities is less than the number of shares issued. Also known as an "underbooking".

Investopedia Commentary

Typically, the goal of a public offering is to price the security issue at the exact price at which all the issued shares can be sold to investors, so there will be neither a shortage nor a surplus of securities. If there is more demand for a public offering than there is supply (shortage), it means a higher price could have been charged and the issuer could have raised more capital. On the other hand, if the price is too high, not enough investors will subscribe to the issue and the underwriting company will be left with shares it either cannot sell or must sell at a reduced price, incurring a loss. Sometimes, when underwriters can't find enough investors to purchase IPO shares, they are forced to purchase the shares that could not be sold to the public (also known as "eating stock").

Related Links

IPO Basics Tutorial
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See also: Eating Stock, Fully Subscribed, Initial Public Offering - IPO, Oversubscribed, Pot Is Clean, Prospectus, Public Offering Price - POP, Syndicate, Underwriting

Also spelled: under-subscribed, under subscribed, underbooking

undersubscribed

Of or relating to a new issue of securities for which demand from investors is less than the number of securities to be issued.