oversubscription

A situation that arises when there are more applications for a new issue of securities than there are securities available. In these circumstances, applications have to be scaled down according to a set of rules devised by the company issuing the shares or their advisors. Alternatively some companies prefer to allocate the shares by ballot (see allotment). Oversubscription usually occurs because of the difficulty in arriving at an issue price that will be low enough to attract sufficient investors to take up the whole issue and yet will give the company the maximum capital. Speculative purchases by STAGS also make it difficult to price a new issue so that it is neither oversubscribed nor undersubscribed. In the case of undersubscription, which is rare, the underwriter has to take up that part of the issue that has not been bought by the public. Undersubscription can occur if some unexpected event occurs after the announcement of the issue price but before the issue date.