Underwriting Commitments
The arrangements by which investment banks bring new issues to market: in a firm-commitment underwriting the bank buys the entire issue and resells it (acting as principal); in a best-efforts deal it sells what it can as agent, with no purchase obligation.
In a firm commitment the managing underwriter forms a syndicate to spread the risk, and the spread (the difference between what the issuer receives and the public offering price) is the syndicate’s compensation. A standby underwriting backstops a rights offering by purchasing whatever existing shareholders do not subscribe.