Firm Deal

We’ll start with “Firm Commit.” And there's the ultimate version, "I do." But we shan't go there for now.

The whole notion of a firm commit applies on a few fronts. Like…If a lender is lending dough, usually there is a contractual agreement, cleverly called a firm commitment letter, which specifies the amount of money the lender is willing to lend at a given interest rate with all the other terms spelled out…for a given time.

Like...“this offer is good for 30 days, or until June first, or until the werewolf crows.” What? They crow, don't they? Okay...howl. Whatever.

In an IPO, when a bank is selling shares on behalf of a company issuing them, a Firm Commit basically says that the bank is responsible for selling any unsold shares. That is, it’s called a “bought deal”...and the bank either sells those IPO shares to investors, or they buy them for their own account.

In a firm quote, the commitment involved usually refers to a broker dealer’s bid ask spread in selling shares. Like…she holds a few million shares of Amazon in inventory, and publishes to her constituency that she is firm as a buyer at eleven hundred two and 20, and a seller at eleven hundred eight and fifty.

If anyone matches those numbers, then she is legally obligated to sell to them. And just in case someone wants to buy a gajillion shares, i.e. more than she carries in her inventory...there is usually a limit number attached. “I stand firm on 100,000 at this price.” Something like that, anyway.

So…Firm. Think: obligated. Confirmed. Legally binding. And sometimes that last one'll give ya cramps. Try prunes.