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