The Gross Spread, or "Gross Underwriting Spread," is an amount of money that the underwriters of an initial public offering (IPO) receive. It represents part of their compensation as they are being paid to raise the additional capital that allows someone else to do something – in this case take a private corporation public. The difference between the offering price and the market value of the stock can be viewed as profit for those involved with the IPO. In other words, the gross spread is how much money Wall Street makes from your IPO.Although this may sound like something completely irrelevant to you as an investor, it can have a significant impact on how much you pay for your stocks.The gross spread that the underwriters of an Initial Public Offering (IPO) receive is the compensation they receive from the new company's offering. The underwriting process involves a financial institution acting as an intermediary to distribute securities to investors in exchange for a fee — or "gross spread."Let's say you own a popular electronics store and want to sell it to a larger corporation. You meet with your banker to discuss this potential acquisition and he tells you that it will cost $40 million to buy your store, but if you accept $25 million in cash up front then you can get the remaining $15 million after the sale is finalized. You sign on the dotted line, and then realize that there will be a gross spread of $10,000,000 (2010) after taxes. This means that your original $15 million investment ballooned into over $5 million before taxes kicked in. These numbers do not even include fees and charges like escrow services etc. Gross Spread is based on the total world exposure of a securities firm or giving market value of IPO stocks (Total Costs) minus the buying price per share being sold by issuing company (Underwriting Price).
