In a securities transaction, what is the term for the difference between the proceeds to the issuer and the public offering price?

The term that defines the difference between the proceeds to the issuer and the public offering price is known as the underwriting spread. This spread represents the compensation that underwriters receive for facilitating the sale of securities in an initial public offering (IPO) or subsequent offerings.

When a company issues new securities, the public offering price is the amount investors pay to purchase those securities. The proceeds to the issuer refer to the actual amount the company receives after deducting the costs associated with the issuance, which include the underwriting spread. This spread compensates the underwriting firm for their services, which typically include marketing the securities, conducting due diligence, and assuming the risk of purchasing the securities and selling them to the public.

Understanding the underwriting spread is crucial because it reflects the costs incurred by the company in raising funds through the issuance of securities, thus having significant implications for the financial health and capital strategy of the issuing firm.