The underwriter in a new stock offering serves as the intermediary between the company seeking to issue shares in an initial public offering (IPO) and investors. The underwriter helps the company prepare for the IPO, considering issues such as the amount of money sought to be raised, the type of securities to be issued, and the agreement between the underwriter and the company.
The underwriter then creates a draft prospectus to take on a road show to potential institutional investors. The road show seeks to create excitement for the IPO and involves conferences given to investors around the country. After the road show, the underwriter and company determine of the final price for the IPO based on the orders received during the road show. Then, the syndicate allocates shares to investors. The final step is the first day of trading, when the investing public can first buy the stock on an exchange.