Posted in Finance, Accounting and Economics Terms, Total Reads: 373
Devolvement is a process in which if an issue (e.g. IPO) goes under-subscribed, an underwriter is appointed whose job is to subscribe the remaining stocks. being under-subscribed is not a favorable scenario and can lead to bad results for the company involved with the issue. Now to compensate the same underwrite subscribes the left over shares and makes it fully subscribed.
There are lot of rules regarding the same e.g. India. SEBI has laid down rules by which the process of devolvement can be carried out. There can be multiple underwriters too.
The underwriters in most of the IPOs or Initial Public Offerings are Investment Banks. When there is an under subscription of a security issue, the underwriting investment bank is forced to purchase the unsold securities during the offering and then devolvement is said to have taken place.
The point is that underwriter will have to hold the shares in case there is no buyer(s) in the market. Eventually the shares would lose value as no trading would happen. That is why devolvement is a just a temporary solution.