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Backstop Meaning

A backstop is a financial arrangement that provides a secondary source of capital when the primary funding source is insufficient. In underwriting, a backstop agreement ensures that any unsubscribed shares in a rights offering will be purchased by a standby buyer, guaranteeing the issuer raises the desired capital. The backstopper—often an investment bank or private equity firm—assumes the risk of unsold shares and typically receives a fee or a discount as compensation.

Backstops also appear in corporate finance as revolving credit facilities that provide liquidity if cash flows decline or market conditions tighten. For example, a company may negotiate a credit line that it can draw on if it cannot raise funds through bond markets. Similarly, government agencies sometimes act as backstops to support financial stability, stepping in during crises to supply liquidity.

These arrangements function like an insurance policy: they give confidence to investors that obligations will be met even if the primary funding fails. However, because backstops transfer risk from the issuer to the backstopper, they are priced accordingly and can be costly.

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Important Disclaimer:

Finery Markets BVI Limited (“Finery Markets”) provides software, technology infrastructure, and related Information and Communication Technology (ICT) services on a Software-as-a-Service (“SaaS”) basis. Finery Markets acts solely as a software vendor and does not operate a trading platform, does not intermediate, match, execute, clear, or settle transactions, and does not engage in any activities that would require regulatory authorisation under applicable laws.

Finery Markets’ software is non-custodial and is provided exclusively to licensed institutional entities that act as independent operators of their own environments. All counterparties are solely responsible for establishing and maintaining their own bilateral trading and settlement relationships. Finery Markets is not a party to any such arrangements and assumes no responsibility for the conduct, verification, or compliance obligations of any users of the software.

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