underwriting outline

syndicate letter

• account is eastern/western?
• other terms except syndicate member commitment
• stabilizing bid, amount? when will occur?
• if all of issue is sold, how order will settle?
• names of syndicate members and % participation 
• manager-full control or no?
• manager duties
• needed info about syndicate members
• spread: manager's fee, concession, re-allowance 
• stabilization, needed when market price begins to decrease below new issue offering price 
• if all shares of new issue unsold, secondary market can develop 
• if secondary market price of issue < price of new issue, difficult for syndicate to sell
• stabilizing bid, syndicate manager may support price of issue in secondary market, offers to repurchase issue
• stabilizing bid, at same price of new issue or lower
• stabilizing bid, penalty bid, selling group loses commission on sale of issue that is repurchased by syndicate manager 
• purchase contract,agreement among underwriters, terms and conditions for underwriting-levels of participation
• priority for allocation, shows customers interest in underwriting
• syndicate manager-decides which firms get securities
• agreement, tells how much each underwriter will participate
• order of settlement, priority for orders to be filled

1. group net orders: sold at public offering price

• everyone in syndicate gets sales concession
• large order to buy new issue by one of syndicate members
• all syndicate members get concession for sale
• all members get part of concession

     2. designated orders: one of syndicate members places order to buy new issue

• not all syndicate members get credit for sale
• large blocks get priority
• designated order, order for mutual fund 
• based on politics 

      3. Greenshoe clause

• when offering oversold
• underwriter asks issuer to be able to issue more shares
• decide ahead of time how many extra shares can be issued if issue is oversold
• issuer agrees extra shares can be issued in if issue is oversold

A corporate issue that is being underwritten has been effective for over a week. The price starts to drop, so the manager enters a stabilizing bid. The public offering price on the issue is $31. At what price will the manager enter the stabilizing bid?

• $31
• the stabilizing bid at/below public offering price
• always at public offering price so issue will cost same as initial offering price 

underwriting outline

underwriting syndicate

• different investment banks compete to be underwriter
• competitive or negotiated method
• syndicate, underwriting group
• selling syndicate, underwriting group
• lead underwriter, manages underwriter
• syndicate manager, lead underwriter-manages books, deals with issuer and syndicate

tombstone ad,

• advertise securities
• can only provide basic information
• list of underwriting firms names
• lists lead underwriter next to other broker/dealer firms

selling syndicate

• one or more broker/dealers who will commit large sums to bringing issue to market
• help with pricing of issue
• decide how to price issue
• syndicate buys shares/bonds from issuer
• lead underwriter, responsible for selling big part of issue
• other syndicate members responsible for selling small part of issue

syndicate letter a.k.a agreement among underwriters a.k.a. account letter a.k.a syndicate agreement

• terms of account management
• amount of issue per member
• amount of money paid per member
• basis-how issue will be sold if oversold?
• syndicate member obligations
• participation-east or western account?
• corporate-sold night before or morning of sale, last opportunity for syndicate members to give up their commitment
• municipal-signed 2 weeks before bond issue
• after issue sold, members receive sales charges
• syndicate settlement letter, issue has been sold, how much syndicate members receive for selling their parts of the issue

Selling group

• no financial commitment to sell # of shares
• can sell parts of issue
• gets the most small profit of all vs manager, underwriter

Which of the following is part of an underwriting syndicate that has a financial responsibility to the underwriting but has no other commitments other than pricing and selling?

• syndicate member
• financial commit and sells
• manager, underwriter-other work
• selling group sells, no financial commitment