“Reallowance” is what happens when our kid tries to convince us we didn’t give them their allowance yet, and should therefore give it to them again.
Actually, that’s not true. Reallowance is less about doing chores and more about selling shares, though both involve paying someone to do stuff. In reality, “reallowance” is the money paid by securities underwriters to the outside securities firms that sell the stocks they’ve underwritten. It doesn’t happen all the time, but it does happen if underwriters are trying to drum up interest around a particular stock or mutual fund.
Let’s say Food Mutant, Inc., a company that sells kits to genetically modify our own food at home, has just gone public, and we as underwriters aren’t sure how the market is going to feel about the whole thing. So we contract with an outside brokerage, promising to pay them a fee—usually a percentage of the sale—if they can sell Mutant Food shares to their clients. That fee is called a reallowance, and the hope is that the added financial incentive to brokers will push them to push the security.
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Finance: What is an Underwriter?81 Views
finance a la shmoop what is an underwriter Undertaker underwriter
taking your company public well then you need one of these guys and yeah if [Woman writing at a desk]
things go poorly well then you may need one of these guys but if things go well [Gravestone]
an underwriter will get to know your company audit your financials give their
Good Housekeeping Seal of Approval to the investment community with whom they
deal regularly and introduce you as part of their family selling a piece of your
company to that world you know hedge funds mutual funds private wealthy [List of benefits that come with an underwriter]
investors such that they are the you know financial wind beneath your wings [Skyscraper flying away]
for a brief moment in time the underwriter usually an investment bank
like the vaunted Goldman Sachs or Morgan Stanley or JP Morgan or UBS or Sumitomo
will actually themselves own whatever piece of your company you are bringing [Logos for the banks appearing]
public like if you're selling 18 million shares at 20 bucks the bank's our
underwriters take a new public will own all 18 million shares having paid you
$19.60 for them and then turning around five minutes later and selling them for
20 bucks to John Q invest or making 40 cents a share in spread or markup or in [Spread calculation shown]
this case 40 times 18 million or 7.2 million dollars just for the pleasure so
that's an underwriter and if they screw up well yeah and ironically the [Underwriter stamp]
announcement he'll see in the digital paper is usually in the shape of a
tombstone announcing everything why a tombstone well because it represents the
death of ambiguity or confusion in that company's former life as a private one [Gravestone for ambiguity]
The Undertaker's hopefully have far far away [The Undertaker running away with the word confusion]
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A takedown is a commission or spread that investment bankers take from the proceeds raised on a securities offering.