Pricing information provided orally by underwriters: Overview, definition, and example
What is pricing information provided orally by underwriters?
Pricing information provided orally by underwriters refers to the verbal communication of the terms, conditions, or expected price range for a financial product, such as securities, bonds, or insurance policies, provided by the underwriters during the initial stages of a deal or offering. Underwriters are typically financial institutions, brokers, or entities that help issue and sell securities to the market. The oral pricing information may include estimated prices, yields, or premiums, but it is not legally binding until formal documentation or written agreements are issued.
In the context of securities, for example, underwriters may give oral indications of the expected price range for a new stock offering or bond issue, but the final price will only be set after further discussions and formal documentation.
Why is pricing information provided orally by underwriters important?
Pricing information provided orally by underwriters is important because it helps potential investors or participants gauge the pricing structure and conditions for an upcoming offering or transaction. It gives market participants a preliminary understanding of what to expect, which is crucial for decision-making.
However, since the pricing information provided orally is not legally binding, it allows for flexibility in negotiating final terms. This process also helps build market interest and prepares buyers or investors for the official pricing once the offering is finalized.
For underwriters, providing oral pricing information is part of their role in assessing market demand, refining the terms of an offering, and facilitating transactions between issuers and investors.
Understanding pricing information provided orally by underwriters through an example
Imagine a company planning to issue new shares in an initial public offering (IPO). The underwriter of the offering provides potential investors with oral pricing information, indicating that the expected price range for the shares is between $20 and $25 per share. This information is not legally binding, but it allows interested investors to consider whether they want to participate in the offering once the official price is set. After further discussions, market analysis, and demand assessment, the underwriter finalizes the price at $22 per share, and the official offering documents are sent to investors.
In another example, a bond issuer is preparing to issue a new bond. The underwriter gives verbal pricing information to institutional investors, mentioning that the bonds are expected to offer a yield between 3% and 4%. The final yield will be determined after assessing market conditions and investor demand.
An example of a pricing information provided orally by underwriters clause
Here’s how a clause related to pricing information provided orally by underwriters might look in an offering agreement:
“The Underwriters may provide pricing information orally, including estimates of the price range for the securities, the expected yield, and other key terms, prior to the finalization of the offering. Such oral information is not binding, and the final pricing will be determined upon completion of the offering and reflected in the official offering documents.”
Conclusion
Pricing information provided orally by underwriters plays a vital role in preparing investors for the terms and conditions of an upcoming offering, helping to generate interest and guide decisions before the official documentation is issued. However, since this pricing information is not legally binding until formal agreements or documents are released, it allows flexibility for both underwriters and investors in adjusting to market conditions. This oral communication is part of the broader process of pricing and structuring financial products, ensuring that both the issuer and investors are well-informed as they move towards a final agreement.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.