Sale and distribution of a new offering of securities, carried out by a financial intermediary (an investment banker), who buys securities from the issuer as Principal and assumes the risk of distributing the securities to investors. The process of purchasing and distributing securities is known as Underwriting. The Glass-Steagall Act of 1933 prohibited commercial banks from underwriting securities, and required banks to sell their underwriting affiliates, because of abuses by some commercial bankers in selling securities to their own customers.
The Glass-Steagall restrictions were finally removed by the Gramm-Leach-Bliley Act of 1999 which authorized commercial banks to engage in investment banking activities through affiliated companies, underwriting commercial paper, corporate debt, and equity securities. The act also removed previous restrictions barring banks from underwriting municipal revenue bonds. See also Securities Subsidiary.
