Definition of Undersubscribed





What does the term undersubscribed mean? What is the definition of the term undersubscribed?

When a company issues shares to the public, investors will "subscribe" to the offering through the underwriters of the issue.

For instance - XYZ is going public. You do quite a bit of business through one of the underwriting brokers, so you are given the opportunity to buy shares (or subscribe) in the offering.

Definition of UndersubscribedOne of the primary roles of the underwriter(s) in any IPO is to make sure that all available shares in the offering have been successfully placed with investors. Underwriters need to balance the demand for the offering with the proposed offering price range. If the price is too low, then the offering will be "oversubscribed" (too much demand). If the price is too high, then the offering will be "undersubscribed" (too little demand).

Companies issue shares to the public in order to raise capital, so they are obviously interested in seeing their shares priced as high as possible. If there is too much demand for an offering, then an issuing company will be angry that the offering wasn't made available at a higher price.

If the issue is "undersubscribed", then demand for the offering is weak and the underwriting brokers will likely lower the price range for the offering.




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