Subscription refers to the process of

investor An investor is a person who allocates financial capital with the expectation of a future return (profit) or to gain an advantage (interest). Through this allocated capital most of the time the investor purchases some species of property. Type ...

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 languages, 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 ...

word ''subscribere''.

Historical

Praenumeration

An early form of subscription was praenumeration, 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 cro ...

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

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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 ...

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 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 use ...

commitments from

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.

References

Financial markets Securities (finance) Procurement {{finance-stub