Subscription refers to the process of
investor
An investor is a person who allocates financial capital with the expectation of a future Return on capital, return (profit) or to gain an advantage (interest). Through this allocated capital most of the time the investor purchases some specie ...
s signing up and committing to invest in a financial instrument, before the actual closing of the purchase. The term comes from the
Latin
Latin (, or , ) is a classical language belonging to the Italic branch of the Indo-European languages. Latin was originally a dialect spoken in the lower Tiber area (then known as Latium) around present-day Rome, but through the power of the ...
word ''subscribere''.
Historical
Praenumeration
An early form of subscription was
praenumeration
Praenumeration (German: Pränumeration, IPA: Near-open_front_unrounded_vowel.html" ;"title="nowiki/> prænumeration.html" ;"title="Near-open front unrounded vowel">prænumeration">Near-open front unrounded vowel">prænumeration was an early form o ...
, a common business practice in the 18th-century book trade in Germany. The publisher offered to sell a book that was planned but had not yet been printed, usually at a discount, so as to cover their costs in advance. The business practice was particularly common with magazines, helping to determine in advance how many subscribers there would be.
Praenumeration is similar to the recent
crowdfunding
Crowdfunding is the practice of funding a project or venture by raising money from a large number of people, typically via the internet. Crowdfunding is a form of crowdsourcing and alternative finance. In 2015, over was raised worldwide by crow ...
financing model.
New issues
Subscription agreement
Subscription to new issues can be covered by a subscription agreement, legally committing the investor to invest in the financial instrument, and committing the company to certain obligations and warranties. In some jurisdictions, it is possible for the issuer and subscriber to use a template subscription agreement as the basis of this agreement, although bespoke contract drafting by a qualified specialist may be required in more complex cases.
Subscription period
When a new
security
Security is protection from, or resilience against, potential harm (or other unwanted coercive change) caused by others, by restraining the freedom of others to act. Beneficiaries (technically referents) of security may be of persons and social ...
is to be issued, investors typically have two weeks to submit their subscription orders. At the end of this subscription period, the issuer announces the offering price and the method of allotment.
Allotment
Allotment is a method of distributing securities to investors when an issue has been oversubscribed. At the end of the subscription period, the demand for a new issue can exceed the number of
shares
In financial markets, a share is a unit of equity ownership in the capital stock of a corporation, and can refer to units of mutual funds, limited partnerships, and real estate investment trusts. Share capital refers to all of the shares of an ...
or
bond
Bond or bonds may refer to:
Common meanings
* Bond (finance), a type of debt security
* Bail bond, a commercial third-party guarantor of surety bonds in the United States
* Chemical bond, the attraction of atoms, ions or molecules to form chemical ...
s being issued. In such cases, the underwriting bank allots the securities with the approval of the issuer, either by
lottery
A lottery is a form of gambling that involves the drawing of numbers at random for a prize. Some governments outlaw lotteries, while others endorse it to the extent of organizing a national or state lottery. It is common to find some degree of ...
or on the basis of a formula. An allotment formula usually takes into account the issuer's preferred target investor groups.
Oversubscription
A
funding round
A securities offering (or funding round or investment round) is a discrete round of investment, by which a business or other enterprise raises money to fund operations, expansion, a capital project, an acquisition, or some other business purpose.
...
is oversubscribed when the company has obtained
funding
Funding is the act of providing resources to finance a need, program, or project. While this is usually in the form of money, it can also take the form of effort or time from an organization or company. Generally, this word is used when a firm uses ...
commitments from
investor
An investor is a person who allocates financial capital with the expectation of a future Return on capital, return (profit) or to gain an advantage (interest). Through this allocated capital most of the time the investor purchases some specie ...
s that, in aggregate, amount to more money than the company needs or intends to raise. The term may be used informally to describe a state where there is more money available than the company needs.
See also
*
Initial public offering
An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also to retail (individual) investors. An IPO is typically underwritten by one or more investment ...
*
Greenshoe
Greenshoe, or over-allotment clause, is the term commonly used to describe a special arrangement in a U.S. registered share offering, for example an initial public offering (IPO), which enables the investment bank representing the underwriters to ...
References
Financial markets
Securities (finance)
Procurement
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