Unsubscribed

The term "unsubscribed" refers to newly issued securities that have not seen much interest, or subscriptions, from investors ahead of the issue date or have not been offered by brokerages. If you wanted to own the newly issued shares, you'd be able to purchase them only as you would any other stock—through the secondary markets. In other words, shares from an initial public offering (IPO) that are not purchased, or subscribed, ahead of the IPO’s release are labeled unsubscribed.

Essentially, you can view a subscription to a public offering as an order to purchase the shares from your brokerage firm once they are issued. If you are not subscribed to a given public issue, you will not be buying any shares through the public offering.

A company’s IPO is typically underwritten by an investment bank. The investment bank tries to determine the offering price that will result in an optimal number of subscriptions. Too high an offering price is likely to result in the shares being unsubscribed, and the size of the unsubscribed portion of the IPO can affect the prices of all the shares. If a portion of an IPO is unsubscribed, the issuing company may not be able to raise its target capital. The issuer may require an underwriter to buy the unsubscribed portion.

For example, let’s say that Company X is about to go public. It wants to issue an IPO of 10 million shares. Its investment bank underwrites the IPO, writes up documents detailing the company’s business model, financial outlook and the terms of its IPO, and then takes this information to potential buyers to see if they will subscribe to the offering, or agree to buy shares of it prior to its release. Once the underwriting bank has gauged the level of interest in the offering, it will decide how many shares it will sell and at what price it wants to offer them. In this example, let’s say that the underwriting bank finds buyers for 9 million of Company X’s 10 million shares, and it agrees to sell those shares for $20 apiece. One million of the shares are remain unsubscribed, and Company X may not earn as much from its IPO as it had hoped to earn.