Notice To Members 83-15

Underwriting Compensation Received by Members in Public Corporate Offerings

Published Date:

TO: All NASD Members and Other Interested Persons

In 1981, the Association's Corporate Financing Committee undertook a study of total underwriting compensation for public offerings of corporate securities in connection with the development of a new corporate financing rule. The proposed new Corporate Financing Rule was published for comment on April 15, 1981 (Notice to Members 81-16). In commenting on that proposal, several persons suggested that the Association provide more specific guidance on generally accepted levels of underwriting compensation. The Association believes it may be helpful to members and their counsel to receive data on the typical amount of underwriting compensation received for various sizes and types of public offerings. The Association is therefore publishing this information today and expects to publish similar information from time to time in the future.

Before discussing the methodology used to derive this information, one fact must be emphasized. All references to compensation here are to total underwriting compensation as computed by the Association, and not only to cash discounts or commissions. As normally computed by the NASD, underwriting compensation includes the dollar value of all of the following:

  • cash discounts or commissions;
  • expense reimbursements and non-accountable expense allowances;
  • warrants and other securities received by the underwriter within 12 months prior to, and in connection with, the offering;
  • underwriter's counsel's fees;
  • finder's fees;
  • rights of first refusal; and,

AMOUNTS OF UNDERWRITING COMPENSATION *

Gross Dollar Amount of Offering (stated in millions)

Amounts For Initial Firm Commitment Offerings

Amounts For Secondary Firm Commitment Offerings

Amounts For Initial Best Efforts Offerings

$0 - $1 million

14.0

8.38

15.10

$1 million - $2 million

13.74

8.33

14.74

$2 million - $3 million

13.53

8.29

14.38

$3 million - $4 million

13.22

8.24

14.02

$4 million - $5 million

12.96

8.19

13.67

$5 million - $6 million

12.70

8.15

13.31

$6 million - $7 million

12.44

8.10

12.95

$7 million - $8 million

12.18

8.05

12.59

$8 million - $9 million

11.92

8.01

12.24

$9 million - $10 million

11.66

7.96

11.88

$10 million- $11 million

11.40

7.91

11.52

$11 million - $12 million

11.14

7.87

11.17

$12 million - $13 million

10.88

7.82

10.81

$13 million - $14 million

10.62

7.77

10.45

$14 million - $15 million

10.36

7.73

10.09

$15 million - $20 million

9.06

7.50

8.31

$20 million - $25 million

7.76

7.27

6.52

$25 million - $30 million

**

7.04

**

$30 million - $35 million

**

6.81

**

$35 million - $40 million

**

6.58

**

$40 million - $45 million

**

6.31

**

$45 million - $50 million

**

6.08

**
  • all other items of value received in connection with the offering.

To determine the typical levels of underwriting compensation cleared by the Association, the study reviewed all corporate offerings filed during a randomly selected nine-month period. A total of 407 offerings were included and categorized as follows:

(1) initial public offerings underwritten on a firm commitment basis;
(2) initial public offerings underwritten on a "best efforts" basis; and,
(3) offerings other than initial public offerings underwritten on a firm commitment basis.

Records of the Corporate Financing Department were utilized to determine the total amount of compensation attributable to each offering and the dollar amount of securities registered. For each category of offerings, a regression analysis was performed to identify the level of compensation which would be expected for a typical offering in each size category.

The findings of the study are set forth in the attached table which lists the amount of compensation for various sizes and types of offerings. It should be noted that the amounts shown do not represent the amount of compensation actually received in any one offering or the mathematical average for all offerings of a particular size. Also, they are based on the maximum amount of compensation which underwriters proposed to receive. The actual compensation received could have been less.

Any questions concerning this notice may be directed to Dennis C. Hensley or Harry E. Tutwiler at (202) 728-8258.

Sincerely,

Gordon S. Macklin
President

Attachment

* This table contains the results of a regression analysis of an overall population and not mathematical averages for each category. This data should be considered only in connection with the explanation of methodology which is contained in the attached notice.

** An insufficient number of offerings were filed in this classification to derive a reliable result.