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Eating Stock

What an underwriter does when he/she can't find enough buyers and is forced to purchase the stock for his/her own account. To cover for risk associated with not being able to find enough buyers for an issue, underwriters charge an underwriting fee. Thus, even in an underwriter is "eating" stock, he/she might still make a profit on the deal. However, in the situation that a new issue is severely undersubscribed, the underwriter might make a loss on the deal.

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