When an IB underwrites for a company they are essentially buying up
those shares. The underlying company is therefore guaranteed a certain
amount of money (share price * quantity less IB fees). The
underwriters are the ones distributing the new shares to interested
party.
In this sense the IBs are the ones taking the risk.
Ive also heard some people discuss IBs shorting the shares they are
underwriting to hedge the risk of a depreciation in value of the
shares before they are placed. Can anyone confirm or deny this?
discussions