In a standby agreement, the underwriter agrees to acquire all remaining shares at the subcontracting price, which is generally lower than the market price of the share. This subscription method guarantees the issuing entity that the IPO represents a certain amount of money. Stand-by-underwriting is also referred to as strict underwriting or old-fashioned underwriting. While the ability to buy shares below the market price seems to be an advantage of standby underwriting, the fact that there are still shares to buy from the songwriter indicates a lack of demand for supply. Standby-Underwriting thus transfers the risk of the company that enters the stock exchange (the issuer) to the investment bank (the underwriter). Because of this additional risk, underwriter fees may be higher. The subscription of a fixed-commitment securities offer exposes the songwriter to a significant risk.
