Editing Initial public offering (section)

===Retention of underwriters===
IPOs generally involve one or more [[investment bank]]s known as "[[underwriter]]s". The company offering its shares, called the "issuer", enters into a contract with a lead underwriter to sell its shares to the public. The underwriter then approaches investors with offers to sell those shares.

A large IPO is usually underwritten by a "[[syndicate]]" of investment banks, the largest of which take the position of "lead underwriter". Upon selling the shares, the underwriters retain a portion of the proceeds as their fee. This fee is called an [[underwriting spread]]. The spread is calculated as a discount from the price of the shares sold (called the [[gross spread]]). Components of an underwriting spread in an initial public offering (IPO) typically include the following (on a per-share basis): Manager's fee, Underwriting fee—earned by members of the syndicate, and the Concession—earned by the broker-dealer selling the shares. The Manager would be entitled to the entire underwriting spread. A member of the syndicate is entitled to the underwriting fee and the concession. A broker-dealer who is not a member of the syndicate but sells shares would receive only the concession, while the member of the syndicate who provided the shares to that broker-dealer would retain the underwriting fee.<ref name="Investment Banking">{{cite book|title=Series 79 Investment Banking Representative Qualification Examination, Study Manual, 41st Edition|year=2010|publisher=Securities Trading Corporation}}</ref> Usually, the managing/lead underwriter, also known as the [[bookrunner]], typically the underwriter selling the largest proportions of the IPO, takes the highest portion of the [[gross spread]], up to 8% in some cases.

Multinational IPOs may have many syndicates to deal with differing legal requirements in both the issuer's domestic market and other regions. For example, an issuer based in the E.U. may be represented by the major selling syndicate in its domestic market, Europe, in addition to separate group corporations or selling them for US/Canada and Asia. Usually, the lead underwriter in the head selling group is also the lead bank in the other selling groups.

Because of the wide array of legal requirements and because it is an expensive process, IPOs also typically involve one or more [[law firm]]s with major practices in [[securities law]], such as the [[Magic Circle (law)|Magic Circle]] firms of London and the [[white-shoe firm]]s of New York City.

Financial historians [[Richard Sylla]] and [[Robert E. Wright]] have shown that before 1860 most early U.S. corporations sold shares in themselves directly to the public without the aid of intermediaries like investment banks.<ref>Robert E. Wright, "Reforming the U.S. IPO Market: Lessons from History and Theory", ''Accounting, Business, and Financial History'' (November 2002), 419–437.</ref> The [[direct public offering]] (DPO), as they term it,<ref>Robert E. Wright and Richard Sylla, "Corporate Governance and Stockholder/Stakeholder Activism in the United States, 1790–1860: New Data and Perspectives". In Jonathan Koppell (ed.), ''Origins of Shareholder Advocacy'' (New York: Palgrave Macmillan, 2011), 231–51.</ref> was not done by auction but rather at a share price set by the issuing corporation. In this sense, it is the same as the fixed price public offers that were the traditional IPO method in most non-US countries in the early 1990s. The DPO eliminated the agency problem associated with offerings intermediated by investment banks.