What is the purpose of secondary market support by underwriters?

The purpose of secondary market support by underwriters is to stabilize the stock price post-IPO by purchasing shares in the open market. After a company goes public, its stock can experience volatility as initial investors decide to sell their shares, which can lead to a decline in stock price. Underwriters step in to buy shares in the secondary market to help mitigate this volatility and sustain the stock's value. This activity reassures investors and may help maintain a stable trading environment, ultimately supporting the issuer's long-term success.

The roles of underwriters in the secondary market are crucial for building confidence among investors, as they demonstrate that there is demand for the stock, thereby reducing the likelihood of dramatic price swings immediately following the IPO. Through this action, underwriters can foster a more favorable trading experience for both new investors and the issuing company.