Understanding Concessions: Fees Underwriters Receive Explained
By Markets & Investing DeskUpdated Nov 10, 2026
Definition
A selling concession is the part of an underwriting spread paid to the firms that sell a new stock or bond issue to investors. Each dealer earns it only on the securities it places.
Key takeaways
- The gross spread splits into a management fee, an underwriting fee and the selling concession.
- In a firm-commitment deal, underwriters buy the issue at a discount and resell it at the offering price.
- The reallowance is carved out of the concession and paid to a broker outside the selling group.
- Buyers pay the offering price with no separate commission, so the concession comes from issuer proceeds.
A concession, or selling concession, is the portion of an underwriting spread paid to the firms that actually sell a new stock or bond issue to investors. When an issuer raises capital through an offering, the public pays the offering price, the issuer receives a lower amount, and the difference (the gross spread) is divided among the banks that run the deal. The selling concession is the slice that compensates distribution: it goes to the syndicate member or selling group dealer that places the securities with a buyer.
How a selling concession works
When a company raises money by issuing stock or bonds, it hires one or more investment banks as underwriters. The lead bank prepares the registration documents filed with the Securities and Exchange Commission (SEC), times the sale with the company and assembles a syndicate of other banks to share the work. Larger deals add a selling group: broker-dealers that place the securities with their clients without taking on underwriting risk.
In a firm-commitment deal, the underwriters buy the issue from the company at a discount and resell it to the public at the offering price. In a best-efforts deal, they sell what they can and are not obligated to take up unsold securities. Which of these applies, and what happens to securities that do not sell, is set out in the underwriting agreement.
The gross spread is then split by function:
- Management fee: paid to the lead or managing underwriters for structuring and running the deal.
- Underwriting fee: paid to syndicate members for committing capital and absorbing the risk of buying the issue.
- Selling concession: paid to whichever firm sells each unit to an investor.
Because the concession follows the sale, a dealer earns it only on the securities it places. A selling group member may also pass part of its concession to another broker-dealer outside the group that brings in a buyer. That pass-through is called the reallowance.
Worked example
Hypothetical figures, for illustration only.
A company sells 10 million shares to the public at $20 per share. The gross spread is set at 7% of the offering price, or $1.40 per share, so the company receives $18.60 per share before its other offering expenses.
Assume the syndicate agreement splits the spread as follows:
| Component | Share of spread | Per share |
|---|---|---|
| Management fee | 20% | $0.28 |
| Underwriting fee | 20% | $0.28 |
| Selling concession | 60% | $0.84 |
If a selling group dealer places 500,000 shares with its clients, it earns 500,000 × $0.84 = $420,000 in concession. If it reallows $0.30 per share on 100,000 of those shares to an outside broker that found the buyers, it keeps $0.54 on those 100,000 shares and $0.84 on the rest.
The same logic applies to bonds. If an issuer sells bonds to the underwriter at $4,900 each and the underwriter resells them at $5,000, the $100 difference per bond is the discount that funds the underwriters’ compensation, including any concession paid to selling dealers.
The concession agreement
In securities offerings, concession terms sit in the underwriting agreement between issuer and underwriters and in the agreements among the syndicate and selling group. These documents state the offering price, the discount, how the spread is divided, who receives the concession and on what conditions it is earned or withheld. Because the underwriter’s compensation is a discount from the offering price, the concession’s economics change if the issue sells slowly, the price has to be cut or unsold securities remain with the underwriters.
Other meanings of concession in finance
Price adjustments in asset sales. In an acquisition, a buyer may negotiate a lower price to reflect the cost of maintaining or repairing the assets, or a valuation that turned out to be inaccurate because of market changes or faulty data. Once the adjustment is accepted and written into the deal, it is a concession.
Real estate concessions. Residential sales often include them. A seller might reduce the price after a home inspection finds needed repairs, cover some of the buyer’s closing costs or include appliances that were not part of the original listing. Buyers can make concessions too, for example on closing dates.
Venue and property concessions. Vendors in shopping centers, theaters and sports arenas operate under agreements granting them the right to sell on the premises, often paying the owner a percentage of sales on top of rent. Governments use the same structure when they grant a company the right to operate a public asset, such as a toll road or a mining site, in exchange for fees or a revenue share.
Limitations and common confusions
Concession vs. gross spread. The concession is part of the spread, not the whole of it. Quoting a dealer’s concession as the cost of the offering understates what the issuer pays.
Concession vs. a fee charged to the investor. In a typical new issue, the buyer pays the offering price and no separate commission. The concession is built into that price and comes out of the issuer’s proceeds. That also means the selling broker has a financial incentive to place the new issue, which investors can weigh when a broker recommends one.
Concession vs. reallowance. The reallowance is carved out of the concession and paid onward to a firm outside the selling group; it is not an additional layer of compensation.
Underwriting concession vs. everyday concessions. A real estate concession or a stadium concession is a negotiated term or a granted right, not a payment for distributing securities. The shared idea is something given up or granted as part of a deal, but the mechanics and the parties are different.
Finally, a concession figure on its own says little about the quality of an offering. It shows how distribution is paid for, not whether the security is fairly priced.
The Bottom Line
Issuers, dealers and investors buying new issues all deal with selling concessions. Issuers should judge offering costs by the full gross spread, since the concession is only one part of it. Investors should remember that a selling broker earns the concession on each placement, which gives it an incentive to recommend the new issue, and that the figure says nothing about whether the security is fairly priced.
