A public offering of securities whereby the underwriter pledges to purchase all securities offered by a company at a special price. Afterwards, the underwriter resells the securities to its customers, pocketing the difference between the purchase and resale prices. The resale price is the public offering price. Underwriters, in a firm commitment setting, are responsible for any unsold quantity of securities (therefore, they are said to be firmly committed to bear the risk of an offering).
Firm commitment underwritings are based on formal agreement that the underwriter will take up the whole issue, while in best efforts underwritings, the underwriter simply promises to exert its best efforts to resell the securities.
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