On the Uniformity of Investment Banking Spreads : The Seven Percent Solution is Not Unique

We investigate investment bank gross spreads for Hong Kong IPOs during 1991-2000 and find pronounced clustering - nearly 94 percent have spreads of exactly 2.5 percent. This clustering is invariant to issue size and decreases through time. We find that SEO spreads cluster as well - at 2.0 percent and at 2.5 percent. We document institutional features that contribute to the low level of spreads, and provide preliminary evidence that the recent arrival of the book-building process for Hong Kong IPOs has increased the level and decreased the clustering of IPO gross spreads