What occurs during the standby period of a rights offering?

During the standby period of a rights offering, the underwriter purchases any unsold shares. In a rights offering, existing shareholders are given the opportunity to purchase additional shares at a predetermined price before they are made available to the public. If shareholders do not exercise their rights to buy additional shares, the underwriter steps in during the standby period to buy those remaining shares to ensure that the company raises the intended capital. This helps provide a safety net and allows the offering to be successful, even if not all existing shareholders choose to participate.

The role of the underwriter is critical during this phase, as it mitigates the risk of the offering falling short of its financial goals. It ensures that there is a market for the shares and introduces another layer of financial security for the issuing company.